Magic Eden, the most popular marketplace for Solana NFTs, announced late Friday that it would no longer strictly honor creator-set royalties on NFTs sold through its platform, bowing to recent pressure as royalties-shunning rivals rapidly stole away its market share.
“After some difficult reflection and discussions with many creators, we’ve decided to move to optional royalties,” the platform tweeted. Magic Eden also said that it would waive its platform fees during a promotional period, in an apparent bid to win back traders.
Magic Eden had been the most dominant NFT marketplace on Solana over the past year, typically owning 90% or more of market share at any given time. The startup rode that momentum to a $1.6 billion valuation in June, just nine months after launching the platform, as it raised $130 million in Series B funding.
🧵After some difficult reflection and discussions with many creators, we’ve decided to move to optional royalties on @MagicEden.
Effective later today, we will also begin running a promotion to waive our platform fees.
— Magic Eden 🪄 (@MagicEden) October 15, 2022
However, upstart marketplaces that opted not to require sellers to pay creator royalties on secondary sales—such as Hadeswap and Solanart—began cutting into Magic Eden’s dominance in recent weeks, prompting action from the platform.
Last week, Magic Eden said that it had partnered with Coral Cube, another marketplace and aggregator, to enable Solana NFT transactions with optional royalties while still keeping full creator royalties in place on Magic Eden’s own marketplace.
On Thursday, Tiffany Huang—Magic Eden’s Head of Marketing and Content—told Decrypt that the Coral Cube partnership was designed to “protect the Magic Eden brand while serving traders,” and that the marketplace “has always been proud of being deeply creator-centric.”
Magic Eden Losing Market Share as Solana NFT Traders Reject Royalties
But on Friday night, Magic Eden tweeted that it had changed its mind, and would be following the rising trend of Solana marketplaces letting users bow out of paying royalties to artists and creators of NFT projects.
“This is not a decision we take lightly. We understand this move has serious implications for the ecosystem,” Magic Eden tweeted. “We also hope it is not a permanent decision. Today, royalties are not enforceable on-chain. We welcome and hope to see new standards that protect royalties.”
In support of that noted desire, Magic Eden announced a hackathon initiative to inspire Web3 builders to develop NFT technology and standards that can make creator-set royalties fully enforceable on-chain. Magic Eden will award up to $1 million in prize money, and Solana co-founder Anatoly Yakovenko is among the judges for the hackathon.
Typically, in an NFT marketplace transaction, the seller pays the set royalty fee to the project creator. However, Magic Eden has approached it differently, putting the onus on the buyer in each transaction to choose whether the royalty is paid or not. By making it possible to not pay the royalty, it’s treated more like a tip to the creator.
Momentum around skipping NFT royalties has grown in recent months, and recently came to head on Solana. Decrypt explored the changing tides in the Solana space last Thursday, highlighting the sudden rise of rival Hadeswap, the views of creators and collectors, and what Magic Eden said it planned to do as its grip on the market weakened.
As of Thursday afternoon, zero-royalty and royalties-optional marketplaces had significantly cut into Magic Eden’s recent market share, which stood at 58% over the previous 24 hours and 61% over the previous week based on total Solana NFT trading volume.
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Traders already appear to be returning to the platform following its Friday announcement. According to data aggregated by NFT marketplace Tiexo, Magic Eden is responsible for 86% of Solana NFT trading volume over the past 24 hours, as of this writing.
Magic Eden’s decision to not only make royalties optional but also temporarily cut its own marketplace fees has yielded an unintended consequence, however: it has led to a sudden rise in wash trading, wherein a user trades NFTs back and forth between controlled wallets at artificially inflated prices well above what the market dictates.
No one to blame for this other than @MagicEden
Single handedly turned the largest Solana NFT marketplace into a laundromat.
Happy “Wash-Trading” ya. pic.twitter.com/FRuqu31OuC
— stainxii (@StainXii) October 15, 2022
It has allegedly been done by project creators and backers in an attempt to boost the tracked trading volume of those respective projects, thus elevating them in the sales rankings and potentially earning them more visibility in the process. Rival marketplace OpenSea, which still honors creator royalties, said on Saturday that it would temporarily stop including Solana NFT projects on its overall market-wide leaderboard due to the apparent manipulation.
Reactions to Magic Eden’s announcement have been widely mixed, matching the divisive tenor of the royalties debate in the weeks and months leading up to its decision. Many Solana NFT traders mocked Magic Eden on Twitter for its abrupt about-face after previously pushing back against royalty-evading rivals.
And while some creators acknowledged that the market was trending in this direction and that unenforceable NFT royalties cannot be a sustainable revenue stream for Web3 creators, others were upset at the news and the potential impact to their businesses.
Two other Solana NFT marketplaces said that they would maintain creator royalties, despite the trend: gaming-centric marketplace Fractal and artwork marketplace Exchange Art. The latter also said that it is expanding use of an optional “Exchange Royalties Guarantee” tool that lets creators prevent their tokenized artwork from being sold on other marketplaces.
“At an alarming rate, platforms have decided to treat artists as an SKU instead of people,” Exchange Art tweeted. “Royalties exist for a reason, and creators shouldn’t be worrying about being listed on sites that dismiss their rights. This is not acceptable, and [we’re] simply not going to tolerate it.”
A social contract was broken and it’s time to take action.
A space that lives in constant fear is a space that can’t move forward, and today, creators are feeling threatened by a trend that is becoming more prevalent by the day.
— Exchange (@exchgART) October 15, 2022
Notable creators from across the NFT space also chimed in. Pseudonymous Deadfellaz co-creator Betty tweeted that Magic Eden’s move would “disempower smaller creators from self-starting without the massive advantages those who are funded and well connected already have.” Creator and collector Jimmy “j1mmy” McNelis described it as a “shit poor move,” among other colorful comments across an array of tweets.
Artist Mike “Beeple” Winkelmann was more diplomatic, tweeting that while he is “obviously pro-royalties and [doesn’t] love what Magic Eden and others are doing,” he praised Magic Eden’s move to put the royalties decision in the buyer’s court.
“By switching to a buyer’s premium,” Beeple wrote, “they are actually very motivated to pay this as they are entering the project and creators can see if this was paid.”