Advocating For A Leased Society.

Advocating For A Leased Society.

The current hot topic of the NFT industry is royalties from the dilapidated implementation of incongruent fee grifting to the obsessive collectors screaming that they don't want to pay a tax for every transfer.

Everyone is wrong and right at the same time. This discussion is the product of an infantile industry led by individuals with little experience doing anything more than speculating on the source of their next paycheck.

Propped up by the hopes and dreams of those profiting off artists, royalties are continually pushed as a primary mechanism of Web3. At the same time, that is objectively false and dishonest to the core—royalties, regardless of your alignment on support, do not exist today. The genuine inability to enforce royalty payments at even the lowest level is an unobjectionable truth. Anyone arguing against the reality of the industry has an ulterior motive one should question.

  • What does one gain from being so dishonest about the state of the industry?

  • Who/what are they protecting?

For some, an elementary perspective is fundamentally based on their genuine lack of Web3 integration. Many have harked strong opinions, surfing on the waves of Ponzi-flooded pumps, never having looked at the technical capabilities of the ecosystem one operates within.

The debate on the validity of royalties is perhaps the single most boring topic I have seen spread through the halls of Web3 high school. Lacking critical thinking, influencers and projects scream from the rooftops that royalties are their mechanisms for revenue generation (of course they do. They are the ones profiting.) Built on the shaky grounds of unsustainability from day one, projects are left with the curse of being bound to the magnitude of hype and market volume one can create.

Due to the massive disconnect and fundamental lack of proper understanding, I will rapid-fire a few things here so we can move forward without carrying the weight of the public's idiocy.

  1. There is not a single EIP that introduces genuinely enforceable royalties.

  2. Every creator chooses the license they wish to use and place over a produced good.

  3. Royalties today are the equivalent of tipping your waiter at a restaurant.

  4. Flat-rate transfer fees "solve" the problem by creating new ones.

  5. Wrapping tokens in a leveraged mechanism introduces magnitudes of friction for no benefit beyond the strict enforceability of a "consumption tax."

  6. "Escrow accounts" / custody platforms and the likes are a step backward and a far too disputable solution to the ignorant problem of "creating enforceable royalties."

  7. One cannot magically add a fee to the ERC-721 transfer function even if one wants to. An entirely new standard would have to be defined.

  8. Harberger taxes have their issues and swim opposite the current market desires and consumer tendency.

  9. Owners can easily bypass excessive royalty compliance in Terms of Conditions.

There exists no real solution. The model is fundamentally flawed. Even more starkly, we encounter the reality of all these difficulties before one can even truly consider their position on the place royalties have in the industry. Everyone is arguing a moot point.

It does not matter what I think. It does not matter what you think. We are wasting our time on a model with no actual feasibility in the real world. Are you struggling to believe that support for art royalties will continue to degrade? I urge you to take a look at any market in history.

  • This is not a discussion of whether individuals have been successful through royalties.

  • This is not a discussion of whether or not one is owed royalties.

  • This is not a discussion of which license is best.

  • This is not a discussion of how an artist should structure the royalties of their project.

This conversation is about an idea that will never see the light of day. Implementation of true royalties was cursed to death the second it was spawned. Like an aborted idea starved of attention, royalties are the knee-jerk appeal to mislead artists and collectors into believing Web3 is something that it not only isn't but something that it literally cannot be.

Read, Write, Lease

Yet. The market continues to look straight into the sun, blinding themselves of any reason as they funnel their funds into the pockets of non-value delivering actions and market action. Royalties are a consumption tax. Floofed on the feel-good idea that you are supporting the artist, we find ourselves in a state of Web3 that is very different than what many advocate.

Instead of the "read, write, own" mantra that has been pushed for the last several years, we now find Web3 in the hilariously starved condition of "read, write, lease."

Do you really own the token in a world with perpetual royalties and licenses that enable token-revoking? A few dishonest creators and people in position will tell you yes. I beg to differ. For far too long, these people at the top of the industry have led things into a dark tunnel of nothing but pure garbage abstraction as we race towards the lowest common denominator: capitalistic desire.

There will always be edge cases and "good/moral participants" in the market. Yet, this market segment is not the one providing the majority of capital or action in the market. Regardless of the validity of one's desires, that is not a free pass to bend reality's truths to fit one's preconceived notions and desires.

Forget the world of ownership; advocating for perpetual royalties is the support for a world of false-ownership, only-permissible movement, and forever leased items left under the control of a centralized party. This compeltely erodes the genuine benefits a blockchain and tokenized asset can offer.

The Subculture of Tipping

As it stands, the royalty mechanisms actively running is little more than convoluted tip mechanisms. Walking into the world of post-royalties, we will soon begin seeing others explore new models that offer the same benefits. Before getting lost in tip-model implementations, one should first consider why the culture of tipping exists.

In many cases, tipping results from unfair or inequitable top-level compensation. For the food industry, this problem cannot be fixed by consumers, and thus the culture of tipping has found a mainstay. Based on the American tip culture, we have clear expectation definitions of when and how much one "should" tip.

Deeply explored by the mysterious academic Michael Lynn, we can take a broad glance at the past (and future) to see the clearly defined reasons one tip for a service:

  • Showing off

  • To supplement the server's income and make them happy

  • For improved future service

  • To avoid disapproval from the server

  • A sense of duty

Remarkably, tipping is not a new evolution of the person-to-person labor economy. Tipping began way back in medieval times when patrons tipped servants for their stewardship. Not to be expected, but by serving as the mark of broader appreciation, tips found their place in society through poverty. By the 17th century, it had become common practice to tip after overnight stays, which quickly spread to tipping in areas modern society is accustomed to, like coffee-houses and restaurants. Even from those standards, the willingness to tip for specific tasks has wholly been lost to time.

When was the last time you stayed at a hotel and left a tip for the housekeepers? Times change, and NFT royalties are experiencing this change for the same reasons.

Are you shocked by the discourse taking place in Crypto Twitter? Please take a second to familiarize yourself with the history of low-class labor compensation. Artists, creators, and general participants of Web3 do not deserve this dimwit-led paternalism.

It is vital to realize that the operating conditions are not the same in Web3. Artist and NFT creators maintain the total capacity to create an appropriate compensation model that doesn't require the grifting of future consumers.

  • Artists feel like they aren't being properly compensated? Then raise the price.

  • Art doesn't sell at that price? Well, it looks like it was appropriately priced before raising prices.

The culture of tipping isn't just found in labor-based industries either. Already, websites like Kickstarter have pivoted towards a mechanism that allows bonus tips. Built on a support mechanism of pre-defined packages while offering additional tips is the dynamic the NFT market will continue to move towards. There are already projects launching that launch with a "pay what you want" mechanism, essentially operating as an outright tip mechanism.

Yet, the NFT market struggles to foresee a reality where capital remains a mercenary. A true disservice to the future creators of Web3. You deserve and should expect better.

The Future of Perpetual Value

Losing perpetual royalties does not mean an artist cannot make money. The reality is far simpler than that. As we move towards a more efficient market, we will predominantly see royalties persist for collections that deliver value enabled by those royalties.

There exist countless entirely unexplored models. Those are primarily nascent due to the misplaced market obsession of royalties.

According to numerous studies, general consumer demand declines with perceived expensiveness and increases with transaction fairness and perceived quality. Additionally, we know that a general consumer does not consider "fees" as part of the cost. This means that by default, one is operating with the ability to increase the price to the same extent that royalties/tips are removed (assumingly sound and efficient economic activity.)

The transition from pre-royalty to post-royalty will be a challenging period for the NFT market as creators and collectors struggle to find their footing. But they eventually will, so let's look at a potential future that I think is far more interesting than a flat-rate perpetual royalty.

Before things get twisted; No, holding team reserves and selling them at the floor is not an innovative structure. Not only is it a greater magnitude of community grifting than royalties, but it's also a forced prisoner's dilemma! As we move forward into a more efficient market, there is a simple guideline to know if a model will be able to stand the test of time:

Is compensation aligned with value?

A fair and equitable model is not built on the measure that a creator or collector can speculate on one's asset or value. The model we will continue racing towards is a model in which consumers pay costs relative to the amount of weight that has been delivered / can be realized.

It's that simple. The most successful NFT projects will be those that operate as a business instead of a high-school project. Understanding the dynamics between a provider and consumer, it is easy to see where costs will go as the velocity of speculative purchasing continues to delve into the depths of time.

Everything revolves around value creation. If there is no perpetual value creation, there is zero justification for ongoing cost. Most importantly, value is not synonymous with the cliche buzzword of utility or some undesirable piece of apparel.

In general, the future of royalties, tips, and artist compensation will not be a harmonious dance of willful donations. Welcome to the world of post-royalty project funding.