NFT-Guild: NFT Royalty Standards

[IMPACT]

During the last few months, the discussions around NFT Royalty Standards have stalled in the Cardano NFT community. The CIP-27 [ https://cips.cardano.org/cips/cip27/ ] solution has not yet been widely adopted by NFT marketplaces.

One option that we can explore is integrating the royalty tracking and distribution information in the NFT verification tool that members of the NFT Guild are already working on https://cardano.ideascale.com/c/idea/398378

But this represents only one of the multiple possibilities of approaching and implementing a working solution and a standard covering this issue. Community talks, consultations, and deliberations are needed in order to implement a workable and agreed-upon solution.

As a result of the fact that in practice no standard is yet followed, marketplaces are currently centralizing the decision-making process. This can create unwanted consequences for the ecosystem as a whole.

https://twitter.com/LegionOfBrad/status/1501905898431782912 

It would probably be best to start the discussion with a reflection on semantics. 

The term “royalty” is used in legacy systems to describe the sum paid to a creator for the use of their work.

In the case of an NFT resale, no use takes place. “Artists percentage of secondary market sales profits” is more descriptive, but since the term royalty has taken hold, it’s fine for general use.

We don’t need to change the word, but it would probably be helpful for the group defining standards to formulate a better collective understanding of the exact nature of the topic we’re dealing with.

The difference might seem subtle, to better visualize it, think of an analogy with a traditional painting. Paying the creator for the right to use the painting in a film (for it to appear in the film) would constitute a royalty. Paying the creator a portion of the profit from the resale of the painting that you bought from him for $200 and resold for $500 would be more similar to a reward, a show of support, and a desire for him to continue his work than a traditional royalty, i.e. a fee paid to gain the right to make use of the artwork.

The fact is that resales of artwork have existed for almost as long as sales of artworks, thousand of years, paying a percentage of the resale amount to the creator (or their descendants) would have always been an option except for the fact that it would have been pretty hard to do in practice.

That’s changed with NFTs.

When it comes to art NFTs, one of the features that stands out the most, one of the most promising and game-changing features is the fact that they open up the ability for the artist to be rewarded each time a piece is resold. It probably makes the most sense that the artists’ cut from each resale is viewed as a reward, a recognition. When viewed as a royalty it becomes a fee, fees are charged by intermediaries, people who usually don’t actually participate in the creative process. Royalties mostly go to labels, studios or publishing houses.

But in the case of art NFT resales, the percentage that goes to the artist from each subsequent resale directly enables future creations and rewards the work already done in a fair and equitable way. Sure, a label or publishing house may have had some contribution in enabling the creative process, but chances are that most royalty sharing deals won’t be equitable or fair in the legacy world.

As all aspects of NFTs, this is also very new in practice, so we’re curious to explore this topic more with the community. There are many areas we could explore.

Primarily we want to focus on ways we can evolve and progress the discussion around the current CIP, and also figure out if there’s a way that a royalty distribution and recognition standard can be merged with the undergoing initiative of building an on-chain verification tool as mentioned above.

But, there are many more areas we could explore.

For instance, one approach we could consider is:

Apply the royalty percentage only on profits from resales, not the entire amount.

Most project creators probably don’t expect a percentage from someone who supported their work initially, but is now selling for less, for example.

Marketplace revenue from fees is not affected.

There are a number of reasons this could prove a good strategy:

1) Doesn’t further penalize those selling at a loss - prevents the creation of an extra layer of dissatisfaction, that can inhibit further participation in the space.

2) Can positively change the creators’ attitude towards royalties, knowing that they only get a percentage from profits.

3) Help keep momentum in the market by simplifying decisions to sell at a similar price as that of purchase.

4) Build stronger communities around projects & a more positive vibe in the Cardano NFT space by creating a fairer environment.

5) The potential increase in sales volume could generate more revenue for marketplaces - only the initial investment of implementing the feature is required.

The feature would require marketplaces to track minting prices & all sales regardless of platform. It definitely would add work, but considering part of it already happens, it should be doable.

This, however, would be made much easier implemented if, for instance, the NFT verification tool https://cardano.ideascale.com/c/idea/398378 would also track royalty distribution as has been proposed by NFT Guild members.

Of course, no such system would be 100% accurate, as there’s no way of tracking P2P sales, but at this point, they probably represent only a very small percentage of total sales.

Ultimately we have to ask ourselves what is the purpose of royalties?

If it’s to enable future development, how much can be realistically enabled by 1-3%?

On the other hand, it can also create the expectation that the creator now has an additional revenue stream, so he/she should be even more dedicated because he’s “getting paid” to do so.

This will of course differ from project to project, but in reality, the amount generated by the royalty payments might not be sustainable in the long run.

This is an evolving topic so we would be interested to hear the communities thoughts on the matter and work together towards exploring it.

As marketplaces have implemented their own custom solutions for royalty distribution the main objection that has emerged, from both marketplaces and creators around the currently proposed solution, CIP-27 [ https://cips.cardano.org/cips/cip27/ ], is that it is too rigid.

  1.  It cannot be applied retroactively to existing projects, created before the CIP, even as they continue to have some of the largest trade volume.

  2.  Royalties can only be tied to a single unchangeable address.

  3.  The parameters of the royalty token cannot be modified after minting. While we appreciate that it can be argued this is necessary to prevent malicious & “rogue” creators from jacking up royalty rates on unsuspecting buyers, it also prevents creative or benevolent actions to be taken. For instance, a creator deciding after the fact that he wants to directly route a portion of the royalties to a DAO that has formed around the project, even though this was not the original vision. Another example would be using royalties in creative ways to stimulate the adoption of the project, for instance, a royalty rate that starts from 0 but increases over time to stimulate aftermarket action in the early stages of the project, or one that starts high and decreases over time, to put a higher “tax” on those only interested in the project for short term profits, etc.

Furthermore, widespread community adoption doesn’t seem to be happening and the entrants into the space, prefer implementing their custom solution. For example, https://www.jpg.store , currently the largest NFT marketplace on Cardano, which accounts for over 85% of trade volume (according to https://opencnft.io/market-overview#marketplace - at the time of writing) uses its own custom solution incorporated into their project verification form to gather royalties information from creators and subsequently makes payments based on that info. So does the newly launched https://epoch.art .

The second most popular marketplace CNFT.io also seems to be using its own custom implementation of royalties, for example, some of the older projects have royalties associated with them, while others do not. It is unclear what is the distinction and how the decision is made.

Challenge/risk:

Not enough participation and involvement by community members in working on implementing an ecosystem-wide standard around royalties.

Solution:

This is exactly what we’ve seen over the course of the last few months and it’s exactly the reason why we are submitting this proposal for consideration, as it will give us the resources necessary to incentivize the work that needs to get done for the benefit of the entire Cardano NFT ecosystem.

For standards to become established they need to be adopted by tool builders and marketplaces. To achieve this, we will work with the tool builders and marketplaces to get successful adoption of the standards.

[FEASIBILITY]

Month 1 - 2: Information Gathering phase.

Month 3 - 4: Specification phase.

During the Information gathering phase (months 1 - 2), we will bring new guild members into the NFT Guild communication platforms, create and send surveys to NFT Marketplaces, NFT Minting tools, and NFT creators. The surveys will be designed to gather information about the current state, what problems the respondents see. The information will be processed and we will conduct workshops with identified partners. We will also discuss different scenarios and issues the community sees today to start thinking about possible solutions. At the end of this phase, we will have a solid information base for transferring into the Specification phase

During the Specification phase (month 3 -4), we will use the gathered data from the surveys and communication platform discussions done during the Information Gathering phase and draw up a design for the standards and possible solutions.

All received funds will be fed into a project's Treasury. From there the funds will be distributed to project contributors.

The NFT Guild will coordinate all project-related activities and operations and will ensure a fair reward to participating contributors.

Outreach & surveys - $5000

Workshops to develop standards - $18000

Project Management, Coordination, and Public Road Map Development - $6000

Total: $29000

NFT Guild Team

CENT ( @cent )

Stake Pool operator of the pool CENT since December 2019. 20 years of experience in software development. Creator of the community tool Cardano Blockchain Intelligence. Graduate of the Plutus Pioneers Program cohort 1, 2021. Project Catalyst proposer since F6. 

Felix Weber ( @felixweber ) - Bridge Builder & Networker, Funded Proposer, CA & Catalyst Circle v1

Anamaria Kövesdi (New Mindflow)

https://www.linkedin.com/in/anamaria-k%C3%B6vesdi-354649106/ 

Rares Kövesdi (New Mindflow)

https://www.linkedin.com/in/rares-k%C3%B6vesdi-551260106/ 

Artists and entrepreneurs, in the CNFT space since day 1, creators of the Trybbles & Icons Cardano NFT projects. Project Catalyst participants since F3, proposers in F4, F5 & F7, CAs in F5 & F7, VCAs in F7. Members in various Catalyst projects, initiatives & communities over more than a year. 

Award-winning filmmakers, film and animation directors, app and game developers. In 2021 they moved into the web3 economy granting new life to one of their projects in the form of an NFT collection on Cardano.

Jenny Lau (SushiBytes) ( @jennslau )

Creator of the SushiBytes NFT project and active participant in the CNFT community since April 2021. Certified public accountant with 13 years of experience in financial and tax reporting. Experience with managing non-profits.

Stephen Whitenstall 

( @swhitenstall ) has 30 years' experience in organising academic, community and business projects. He develops, maintains documentation and provides technical project management support for Catalyst Swarm.

In Fund 6 of Project Catalyst, Stephen's organisation QA-DAO https://quality-assurance-dao.github.io was funded on several significant projects, including Distributed Auditability https://cardano.ideascale.com/a/dtd/Distributed-Auditability/366707-48088 and Oversight of Catalyst Circle https://cardano.ideascale.com/a/dtd/Oversight-of-Catalyst-Circle/370088-48088, and Stephen was co-proposer on a number of other successful proposals around community engagement, auditability and transparency.

In Catalyst Circle v2, Stephen was the representative for Catalyst Coordinator (Funded Proposers) .

Peter Wolcott ( @sirwolcott ) - Driving Catalyst, HeartBeat.Team, SWARM Veteran & CC Admin Secretary

Other NFT Guild Proposals

NFT Community & Ecosystem (Fund9 Challenge Setting)

https://cardano.ideascale.com/c/idea/402560

Standard for verification of NFTs (F8: Open Standards & Interoperability)

https://cardano.ideascale.com/c/idea/398372 

NFT Verification Tool (F8: Open Source Development Ecosystem)

https://cardano.ideascale.com/c/idea/398378

NFT Swap Infrastructure Templates 1 (F8: Open Source Development Ecosystem)

https://cardano.ideascale.com/c/idea/397532

Cardano NFT Reports (F8: Open Source Development Ecosystem)

https://cardano.ideascale.com/c/idea/399099 

[AUDITABILITY]

A public Github site will always show the latest standards we develop and will display the project state at present time. Information about NFT Guild compensation from the treasury will also be viewable on this site.

The NFT Guild hosts a weekly call where progress is shared and discussed in addition to the calls needed for collaboration on this particular project. We would be glad to have you join any of our calls to hear the progress or join our project.

Join our Discord for more details: https://discord.gg/7HCxDryPHk

The compensation of contributions from the project treasury will be fully transparent and a recurring part of our calls.

In addition to that, we plan to set up a first website in Q1/Q2 2022

KPIs / OKRs:

• Number of new voters/collaborators from the NFT industry into Catalyst
• Number of NFT projects following the agreed standard
• Number of NFT marketplaces that have implemented the standard
• Number of NFT minting tools using the standard
• Number of NFT Guild Community Events and Initiatives
• Onboard 250 Guild Members by the end of 2022

A well-established NFT Guild with an active community server (https://discord.gg/7HCxDryPHk) with discussions and events to establish standards. A Github site with standards, specifications and best practices freely available to the Cardano NFT space.

This is an entirely new proposal, but it’s part of the efforts initiated by the NFT Guild in 2021.