Drama today in the NFT space, as X2Y2, a well-known decentralized marketplace for non-fungible tokens, has seemingly admitted to scrapping compulsory royalty fees due to competitive threats from SudoSwap, a rival marketplace.
Non-fungible tokens (NFTs) are cryptographic records on a blockchain often used as proof of ownership for digital artworks. Royalty fees allow digital art creators to earn revenue each time their creations get resold as NFTs.
This August, X2Y2 made all royalty payments optional to the displeasure of creators given the platform’s status as a top-ten NFT marketplace by trading volume.
Recently, QQL, a popular NFT project launched by iconic creator Tyler Hobbs, included code in its smart contract that blocked X2Y2’s delegated wallet, effectively cutting off transactions with the marketplace. QQL raised $17 million by selling a 900-piece collection for 14 ETH each, making it one of the first big NFT collections to block transactions on a 0% royalty fee marketplace.
X2Y2 hit back at QQL, accusing the NFT project of acting like the music industry. “Code is law,” and QQL has made its own law. When someone else can decide where you can transfer your NFT, you are not the real owners anymore,” X2Y2 said in a long Twitter thread. “Sounds familiar? Yes, this is exactly what happens in the music industry - you don’t own the mp3s lying on your hard drive.”
X2Y2 defended themselves by clarifying that it’s not a 0% royalty platform but instead one where users choose whether or not to pay royalties. The company claimed that 98% of NFT transactions on its platform this month had royalty fees.
X2Y2’s defense looks much like a pretext. It seems the real reason it made royalty fees optional is due to competitive pressure from SudoSwap, one of the few other marketplaces that let users trade NFTs without paying royalty fees. Gem, a leading NFT marketplace aggregator, began supporting NFT purchases via SudoSwap in August, putting additional pressure on X2Y2.
QQL has now set a precedent for big NFT projects boycotting marketplaces that permit sales without royalty fees. If more projects do that, it’ll reduce the appeal of such marketplaces. Thus, it’s not surprising to see X2Y2’s harsh reaction to the boycott.
QQL has enjoyed great success despite this year’s NFT market slump. Barely a day after launching, the floor price for its NFT collection has risen from 14 ETH to over 20, according to Gem. It’s now the second-most popular NFT collection by trading volume, only beaten by the famous CryptoPunks collection.