Shanti Escalante-De Mattei
A year ago, cryptocurrencies and NFTs seemed unstoppable. In January, Jimmy Fallon and Paris Hilton promoted Bored Ape Yacht Club NFT on The Tonight Show , and a few days later, FTX aired a successful commercial with comedian Larry David at Super Bowl LVI.
We know how these stories unfolded. Starting this month, everyone will be sued! Meanwhile, Web3 bosses who invested their cryptocurrencies in NFTs (or, God forbid, bought cryptocurrencies at their peak) are experiencing devastating losses in value. The most interesting development, however, is the failure of the grand vision of an alternative digital art market.
Since NFT trading is no longer a viable option for making huge profits from cryptocurrencies, the question of what value is actually being offered to buyers has once again been raised. This question was not so difficult to answer last year. In 2021, Mike Winkelmann (aka Beeple) sold his NFT Everydays: The First 5000 Days at Christie's for $69.3 million, making it the third most expensive artist. This sale proved that NFTs have value even if you don't fully understand what they offer, and that was enough. Thousands of artists and collectors flocked to the market, which was created by Winklemann, Christie's and Metacoven buyers together with the auction.
But NFT's greatest promise was that the technology could create a fairer economy for digital creators. The Internet is made up of digital content, much of which is created without compensation to creators. While popular YouTubers can sometimes make a living selling merchandise or advertising, they find it difficult, if not impossible, to monetize their main product: digital content. Web3 proponents say NFTs will change that by providing a medium of exchange and digital property that can earn royalties when resold. For the first time, digital content will become a mainstream product, the article says. Digital properties have arrived.
But as the cryptocurrency market collapses, some uncomfortable truths are emerging: if you exclude the crypto-rich from the data set, there aren't really that many people willing to buy crypto. Accustomed digital assets. for free Worse, it has become clear that NFT technology cannot deliver on its promises of reliability, royalties and convenient trading. Artists have discovered that their royalties, supposedly collected through the blockchain, are not being paid, and merchants have been repeatedly defrauded and robbed.
Then, big players and institutions try to solve these problems and attract the remaining customers. Once these adjustments are complete, we may be able to see what place (if any) NFTs will have in our online lives.
One of the most devastating setbacks to creating an alternative NFT-enabled digital art market has been the slow death of rights.
Many artists saw this as a major betrayal of Web3's mission: in the past six months, platforms such as Sudoswap, X2Y2, Magic Eden, Looks Rare and OpenSea have made royalties optional. This move made the entire NFT market royalty-free, allowing anyone who wanted to resell an NFT in one of the additional royalty markets to do so, even if the creator created their NFT in a royalty-friendly marketplace.
As OpenSea CEO Devin Finzer wrote about the situation in a November blog post, "To be honest, the last few months haven't been WAGMI-like [we'll get through this]."
Last fall, conversations about markets and rights took an ugly turn when artists made it clear that rights never applied to markets, even though ARTnews, for example, reported this in the summer of 2021.
In principle, a smart contract executed on one platform and containing rights information cannot normally be "read" by another platform. For example, if someone bought an NFT on OpenSea and then sold it on another market, it is likely that no royalty will be paid.
"I think the biggest misunderstanding was that developers didn't realize that this didn't apply to the web," Shiva Rajaraman, OpenSea's vice president of products, recently told ARTnews . "So we found ourselves in a situation where we were both in a declining market, and a very important business model was effectively shut down after the markets made those rights optional. We knew we had to find a better way to enforce that requirement on behalf of authors.
To that end, OpenSea announced a tool in November that would set online royalties for new collections released in 2023, if creators choose to do so. The tool is a piece of code that can be included in any smart contract and ensures that the NFT will only be sold on platforms that accept royalties. Creators who don't use this tool can impose licensing fees that buyers can't accept.
"Part of Web3's philosophy is to let developers, not platforms, decide how their business model should work," Rajaraman said.
Other players are more cynical about why the platforms decided to make royalties options.
"If you want to encourage the growth of the wax trade, you will have to remove royalties," Salah Zalatimo, CEO of NFT Marketplace Voice, told ARTnews . When a mouse trading trader sets up multiple portfolios to sell NFTs to each other, he increases the price each time to make outside buyers believe the value of the asset is increasing. If the platform required royalty payments, a hypothetical retailer would have to pay a royalty—typically 10% of the sales price—every time they sell an NFT, which would discourage the practice.
"People are sitting in conference rooms asking, 'How can we promote more market activity?' Well, we can try to increase the merchants' profits. How can we do this? One of the biggest influences on their bottom line is the royalty rate, which is 10%. "So why not give in?" - said Zalatimo.
Most platforms operate with low transaction fees, so a high trading volume is required to make a profit.
In contrast, Voice, Zalatimo's platform, charges high platform fees and is committed to collecting creators' royalties. He said he hopes the measures will create a stronger market and encourage more artists to sell their work on the platform.
Meanwhile, NFT platforms based on Tezos, the blockchain that gained popularity last year for being greener and more accessible than Ethereum, have opted for a social solution to apply cross-platform royalties.
"What we see with other blockchains is that they don't respect royalties, and they think that a royalty-free future is inevitable because there are so many ways to avoid them," said Ozzie Eriigit, art director at fx (hash), popularly known. the project Tezos trading platform, ARTnews was told. "That's not our culture at Tezos."
All Tezos-based NFT platforms, including teia, versum, fx(hash) and objkt.com, among others, have committed to never offering 0% royalties in solidarity with artists.
"If we can respect this law as a community, we will not be afraid of a platform with zero licenses," said Eriigit. "Other blockchains want to make it as cheap and easy as possible for collectors, but artists have done a lot in recent years to earn royalties and we shouldn't forget that." However, we believe that anything that goes against artistic values will affect sales. »
As markets struggle to prioritize creators, many are looking for use cases and benefits that can convince customers to keep coming back, or at least keep investing.
For example, SuperRare created RarePass, an NFT that serves as a key to a subscription that provides the owner with one NFT each month, each from a popular artist. Additionally, each month, an artist will create three unique pieces of art that will be randomly awarded to three RarePass winners. According to a press release sent to ARTnews, the pass was very popular. The first 250 copies sold sold for a total of $4.5 million.
Particle, which sells physical art as NFTs (a sort of web version of Masterworks), has begun offering special benefits to Particle owners. Founded by Loïc Gouzer, the former head of contemporary art at Christie's, the company sought to help tech-savvy clients enter the art world by offering partial NFT works, such as Banksy's "Love is in the Air" offering. However, Particle does not offer NFTs. Instead, Partikel owners receive a 25% discount between their sale at Phillips and Partikel's purchase for the auction house. As a result, Particle lost Phillips' commission and is effectively operating at a loss. But this presentation is an important experiment in community building.
"What we're trying to do now with our NFT community is really focus on building and understanding our community," Particle Foundation Director Charlotte Eitan told ARTnews . "We want to know who they are and what they expect from us. We wanted to see if our collectors who particularly like NFTs would want to become collectors of physical art, a collection of tangible works.
Thanks to the RarePass and Particle initiative, NFT platforms are undermining what profile photo collections like the Bored Ape Yacht Club have already discovered: that the most effective use case for NFTs can be the key to accessing exclusive communities.
For BAYC, around 10,000 procedurally generated avatars form the core of the community, while offering incentives or benefits to be a part of that community. Of course, there are parties: for example, at NFT.NYC in June, Yuga Labs hosted ApeFest, a festival with an LCD sound system that allowed access to Ape containers. The attraction of the festival, apart from the music, was the opportunity to network with other BAYC participants who are web developers, technicians and other interesting people. But the biggest benefit of owning a BAYC or any other PFP collection if you don't sell it is the promise that you'll be on the front lines of new releases or assets left by the collection team, thus reducing the growth of the secondary market.
OpenSea has created a similar hub. The platform initially started as a place to buy art NFTs - one-of-a-kind digital artworks - but its bread and butter quickly evolved into PFP collections like BAYC. OpenSea said its focus in 2023 will be on communities and the content those communities create.
"Now when you go into OpenSea, you see a grid of images and make a discrete decision based on the collection or the item. What you're going to see a lot more is storytelling and merchandising," Rajamaran said. we are".
However, we have seen many times over the past year that NFT communities have often struggled to provide valuable benefits and use cases to their owners, especially given the speed with which community members have flocked to them.
Building the future of NFTs by continuously serving wider communities—creating physical art or producing digital assets—and establishing effective governance seems like a difficult and risky journey.
Last year, cryptocurrency and NFT advocates were criticized by established art organizations and insiders for not embracing this new technology. Considering how Web3 went from incredibly cool to worse and worse, the art world's slow reception now seems perfectly reasonable.
Surprisingly, it may be the art world that has taken the most progressive stance on blockchain this year. When the concept of an alternative art market operating entirely online via NFT markets collapsed, the art world developed its own approach.
Since the NFT boom began in early 2021, established art-world startups like Fairchain and Lobus have offered established collectors and institutions a taste of the services blockchain can provide without anyone having to transact with their crypto brethren, a curiously attractive exchange. About Web3 But even these startups were hit hard by the crypto market crash. Then, with the cryptocurrency market officially declared dead, Art Basel's parent company, MCH Group, along with the Zurich non-profit art foundation LUMA, announced a blockchain tailored to the art world: Arcual. Fairchain and Arcual have a similar appeal: blockchain-based art sales are run by leading companies, offering artists, gallerists and buyers authentication, traceability and, in some cases, royalties.
There is an important and additional use case for artist Mel Kendrick, father of Max Kendrick, founder of Fairchain.
"For me, Fairchain is less about scraps and more about being connected to your art and knowing where it is," Kendrick told ARTnews in his Lower East Side studio. Although it's difficult to sell his work so many times that he's no longer famous, Kendrick, who is currently exhibiting at the Parrish Art Museum in Watermill, New York, said it's been a long time coming to fruition. profession
"I wanted to include so many pieces in this exhibition, if possible, with only photographs. I don't know where they are,” Kendrick said. It's a source of pain that he and many of his artist friends and acquaintances have struggled with, citing the cost of running a business.
Because Kendrick is using Fairchain, he hopes this won't happen to the works he currently produces and sells, as he tracks them as they change hands in the chain's ledger.
Looking back over the past year, blockchain's potential to create a new internet, an alternative digital art market, and a metaverse seems a little naïve. Commonplace takes the place of this dream, as it is highly likely that blockchain technology will be quietly absorbed by existing institutions and structures, including the art world.
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