NFTs And Royalties In A Down Market

retain more of the financial benefits of their work. In other words, y pa a platform or an agent or a dealer when you can keep all of your revenue for yourself. But this is where things get a little bit complicated. If you're an artist or musician and you sell your work as an n f T, you'll definitely get paid the first time you make that sale. But what happens if the person who bought it from you then sells it to someone else. In the idealized version of n f T s, you get a royalty on

that sale automatically. In reality, many of these transactions aren't actually set up that way. For more in the current states of n f T s and how platforms are thinking about these royalties. We'll hear from Bloomberg Crypto Report to Olga Karif over nine percent of all of the n f T sales or wash trading, and now most n f T trackers actually have a button new press to get rid of all of the worst trading volume

meant to see what's actually happening in the market. And from Dr Lauren van hoften Chick, who is an Andrew W. Mel And Postdoctoral Fellow at the Center for the Humanities at Wesleyan University. Platforms are the middle people, and by that I mean they kind of become equivalent to dealers in a way, and I you know, dealers have played a really important role in this history in their ability to work with artists. Olga, Lauren, Welcome to the show. Olga.

It's always a pleasure to have you on. And you know, one of the things that you have extensively reported on and that you've even talked about in previous episodes is how the market for non fungible tokens is doing. We are, I don't know, months into crypto winter at this point, and it feels like one of the bigger casualties of shall we say, the decline in sentiment has been what's happening with n f T s? Like, what are the numbers these days? Since the beginning of the year through

the third quarter of sales volume is down. N f T average selling prices are down by you know, a numbers of magnitude, and the number of buyers in the market is also you know, active buyers and sellers also seems to be down a bit. Interest in n f T s has fallen off a cliff. Trading volumes for n f T s, which are basically just digital art and collectibles that are recorded on blockchains, has tumbled from a record high in January. So what's the past forward for n f T s? Will we find a good

use for the underlay this? The n f T market has definitely been um impacted in part by following cryptocurrency prices, but also by some factors that just relate to just

this specific market. What are some of those factors? So with with cryptocurrency, there are lots of use cases for it with enough tase, what we've seen so far is that most enough teas that have been popular, they essentially don't do anything there, you know, say, pictures of you know, acute animal or or an ugly cartoon character in it,

right exactly, and it doesn't really do anything useful. Whereas you know, years ago people were dreaming of finn ft is being used as tickets and ft is being used as you know, membership cards to U two events, and some of them are used this way, but this is a minority of uses. So Olga, you you talk about this idea of utility tokens, right, and we've seen a handful of examples of the idea of you know, your n f T gives you a v I P all

access past to like backstage at a concert. We have had folks talk about, well, you know, your n f T s can unlock restaurant experiences or and we've even profiled creators, especially musicians, who have been able to directly monetize their music on the blockchain without having to go

through things like a Spotify or an Apple Music. And then of course there is like the in game economy in places like actually Infinity, But to your point, the vast majority of the volume and the like truly sky high prices were really in and around the art end of the market. Lauren, what I'd love to get your perspective on as a person who studies this, you know,

I guess for fun and for work. But but what I'd love to get your perspective on is what were some of the dynamics of the art market that these types of n f t s were like explicitly rejecting, as it were, like, what were they supposed to be

doing differently and better? N f t s have you know, really, I think appealed to a lot of artists because they have offered a relatively seamless solution for collecting resell royalties, so that the artists would get a percentage of the sale price whenever their work resales, um thereby being able to share in those profits. Now, historically, recent royalties have

pretty famously been uh largely rejected by the traditional art market. Actually, in a very well known artist contract was written by the dealer and curator Seth ste globe Um, which has been taken up by a number of artists since. In a very very very famous clause within that contract gives artists fift of the upside whenever their work resells. And so the great thing about n f t s and

smart contracts. As many artists see it is that all of the work to and negotiate a contract that kind of convince UM a dealer to accept an artist's desire to use one UM or you know, to to convince a collector that the artist wants to share in the resale value is now kind of taken care of through the basic automation of a smart contract. And really remarkably, um reselle worlties became pretty standard across n f T

platforms from day one. Um So even the first blockchain based platform for selling art, Monograph developed in actually replicated the resale royalty clause from this nine contract in an attempt to kind of do what the traditional art market wasn't able to an OLGA one. One thing about what Lauren is saying is after having all of this progress over the past, you know, several years, in the past several months, we've seen a kind of a reversal in

that standard. Absolutely, so it's it's pretty amazing and uh, it really has had a huge impact on the entire end of tea markets. So previously um the largest marketplace and of tea marketplace was open Sea. Back in March, it commanded eight pcent market share. And what they did was they, as part of you know, signing up for a sale on this marketplace, you know, you would fill out a royalty, check out a royalty box. Essentially you would place a royalty of two and a half to

typically on on on an n f T resale. And a lot of artists loved that because, like Laurence said, this finally opened an avenue for them to get paid on on secondary sales. But the problem is that UM n f T royalties are not enforced through a smart contract. There in fact enforced by n f T marketplaces like

open sea that support them. And what happened in recent months is that several new n f T marketplaces have view did you know in the spring and in the in the summer, and what they said was will make royalty is optional? And essentially when they make royalty is optional, of course nobody wants to pay them. And this marketplace has gained a ton of market share. So what we've seen is that open Seas market share dropped from in

March two at the end of September. Coming up more on what's happening with the n f T markets and to artists, especially as it relates to resale royalties. Lauren, having studied this in the quote unquote real world as well as now in the digital world, what are artists to do? I think I want to push back a little bit in the sense that, let's keep in mind that n f T platforms have only existed in a sizeable scale since okay maybe, and only really exploded less

than two years ago. So I think this is all still very very new, and we can't forget that. Um. I think we still are in a place where norms and standards are kind of up in play, and there are still plenty of platforms that are promoting Reselle royalties and even just the sort of principle of equity, and

so I don't want to discount that. Actually, I think that, you know, it's really important to recognize the fact again that things still are very much information just as these new developments of you know, platforms that don't give royalties are quite new, well who knows what's around the corner, And already there are n f T makers who are pushing back against new platforms that don't have royalties built in.

You know, resell royalties are are one thing to point to but I all so don't believe that we should limit that. Are are our conversations around the kind of financial possibilities of v n f T s to something like resell royalties. I'm also very interested in artists who are looking to more broadly redistributive models and recognizing just the simple kind of administrative cost advantage of what you can do when you can automatically pay a number of

people or site organizations, you know, et cetera. Um So, Sarah Loody as an artist who shows a bit forms gallery and um has developed a future n f T agreement where thirty cent of the sale would go to her gallery, but that would be divided among the staff. But so that's like one kind of model of how we can rethink what art sales are doing in the

first place. Could these models exist outside of a blockchain enabled technology, right, Because to you know, Olga's earlier point, it was not actually and on chain mechanism that was enforcing secondary royalties, It was sort of the will of platforms. And I think, Lauren, what you're pointing to is that the will of either individual creators or collectives of creators, and the you know, like the ecosystem in which they operate is equally, if not more important in terms of

standard setting. And what I'm what I'm always fascinated by in crypto is this tension between the rhetoric of decentralization being for the greater good and the reality that some degree of centralization is where norms come from and can

be standardized and enforced. And so, Lauren, what I'd love if you used to just kind of elaborate on is what is it about the digital power of things like royalties that seem to make people perhaps more interested, more amenable to thinking about things differently, even if they don't actually need the digital peace to enforce those mechanisms. Yeah, I think it's a very good question. Uh, there are a few factors here. One again, I think, is the

kind of automation factor. You know, contracts are contracts with something like a controversial term like recent royalties in them are very difficult to negotiate one on one to present somebody with, especially for somebody like artists who have historically been in the lower bargaining position. So I think that's

one thing I think too. You know, the the rise of these platforms, you know, came not entirely from people who were you know, already immersed in the traditional art world and already kind of had those standards in mind.

And I'm thinking about super Rare, for example, the people who started super Rare, we're coming from the music industry Spotify, and so their understanding of a royalty was actually thinking about music royalties and thinking about, well, you know, creators there get to share in, you know, some kind of profit or profit in some way each time you know, a song is played or whatever. Of course, music is a very different type of good than an artwork or

even you know, some kind of digital image. Um But nonetheless, I think it's you know, interesting to think about the different kinds of factors at play and influences that play that have really made for a quite unique combination of things now that we didn't quite see before. And the fact that um n f T buyers tend to not

participate in the traditional art market. It's not that you had a bunch of buyers who were coming from you know, Brooklyn Gallery Life who were used to one way of doing things now coming into n f T s. You had people who are coming to n f T s

as their way into the art market right exactly. And I think it's going to be very interesting to watch what happens more and more if, say, n f T buyers who had become accustomed to buying works so the resemb yalty attached, you know, make their way into the trade sational art market, and then artists there ask for

recent royalties. Will those collectors say no? Although one thing I want to make sure that we address and when whenever we talk about volumes is just this idea of wash trading, because for a while, one of the big criticisms of folks who were, you know, saying like, oh my god, look at these amazing prices and volumes on a lot of these platforms was in some cases these were sales that were not exactly traditional in the sense of this is this is a buyer exchanging this with

a with a seller. Can you just explain what wash trades were and n f T s and how they affected some of this data. What trading would be, you know, person basically selling an n f T between his own accounts, right back and forth, back and forth. And the reason this was happening was because some of the n f T marketplaces offered their own tokens to uh two people based on the amount of activity on the marketplace. And so the more trading you did, the more of those

tokens you earned. And in some cases those tokens were quite valuable and they could appreciate in price by some estimates. You know, over nine of all of the n f T sales for wash trading. And now most n f T trackers actually have a button new press to get rid of all of the trading volume. Meant to see what's actually happening in the market a lot harder to do in physical arts, Lauren. I would imagine um, so Lauren,

as just as a kind of a closing thing. I'm really interested in what you said about, you know, the differences in standards and principles going all the way back decades in terms of physical galleries and you know, art versus what you're seeing in n f T s. Are there any good things that you have observed in putt on quote traditional art markets that you think food who are trying to innovate and digital should adopt. Hm hmm.

That's a fantastic question. I think it's a real danger, um that there's so much rhetoric against you know, the scare quotes middleman among n f T creators and platforms. You know, the platforms are the middle people, and by that, I mean they kind of become equivalent to dealers in

a way. And I think, you know, dealers have played a really important role in this history in their ability to work with artists to like realize for artists the kinds of sales and artists want, you know, to help artists be able to show the kind of work that they want. And you know, I really do believe that dealers as well as curators can be serious advocates um

and partners with artists. And I don't think that that relationship has translated to this new world, so that I would like to see the importance of relationship apps here be taken much more seriously. Thank you Olga, and thank you Lauren. You can find more of Olga's reporting on the Bloomberg terminal, on Bloomberg dot com and on Twitter. She's at Olga Karf. That's O l G A k H E R I F. On the next episode of Bloomberg Crypto, how do five hundred investors feel about the

prospects for digital assets? Well, we asked them, why do so many of them perceive the Why do so many of them perceive the likelihood of regulation as bullish for the asset class, we'll discuss the findings of a recent Bloomberg Markets Live Pulse survey. This is Bloomberg Crypto, a daily podcast from Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app,

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Original music by Leo Sidron. I'm Stacy Marie Schmal. We'll be back tomorrow.