NFT Creator Royalties: Redefining Ownership and Value in the Digital Art Space | KBW2023

[Music] uh hi everyone good evening uh my name is James uh I'm a founder of uh daps games and uh it's such a great pleasure have this great guest today tonight could you brief introduce yourself please hey uh my name is Frank um dgod UT nft projects uh started those and still running them yeah my name is fro founder of rug radio uh decentralized web3 media ecosystem hi I'm Pacman one of the core contributors of blur the nft marketplace for prot Traders okay we have uh you know staps of uh nft uh space let me start with the uh nft 101 uh this might be a tough question how do you define nft digital property I think is probably the de best definition because it it can be from everything from cartoon jpegs to obviously representing ownership and physical real world assets too so yeah digital property bullish very I'll tell you what they're not they're not a scam I promise you you don't have to leave the room all the C Dev and crypto people I promise you uh but you know I'll tell you that so you know for me it's just like a product right a great way to build infrastructure on chain to be able to either reward or build community uh you know in a permissionless way yeah I would say nfts in their current form are primarily digital Collectibles but nfts more broadly are effectively any non-f funable asset ass issued on a blockchain that can be a digital collectible it can be a piece of artwork it can be uh you know real estate a real world asset um it's effectively a very broad standard that can be used for many different things uh should we use the word nft because you know in the market it's kind of a negative vibe these days I mean crypto nft scam what do you think you know it's a funny question a lot of things that happen in uh nft culture already happened in crypto culture Broadley so uh if you look at Bitcoin you know very early on bitcoin was only associated with uh like funding terrorism like buying uh stuff on the dark net um you know it was referred to as rat poison by Warren Buffett now you have Larry thinkink who's uh you know heads Black Rock Shilling Bitcoin as digital gold uh online so ultimately while there are different reputations that'll come and go um I think nfts uh as like a verb will will probably say and the connotations will change over time yeah I feel the same way I know there's this big movement of like oh let's call it [ __ ] digital you know Goods or Collectibles or whatever um I I think that you can't trick people into buying nfts I see that narrative all the time and I think that yeah it's a good term um it's definitely got some baggage to it but let's own that um and just make it better I don't know yeah yeah just quickly I think they're both right but like think it's just an educational thing like what nftd is just the underlying technology right it's l called non fible token that's all it is right and then on top of this I think you give the best definition of what nfts are but it's just there's nothing else to it I think we need to disassociate nfts from just being like a pfp pump and dump scheme or whatever and show people there just so much more going on in the space okay my next question is what significance does do choice of mainnet holding the nft ecosystem maybe uh Frank you you've been through all this uh Solana polygon and eth and bit Bitcoin yeah going to Salesforce next now um yeah I think the each of the different uh blockchains just have different communities different tribes so they all have their own unique properties I think ordinals is fascinating I think polygon is making some really big progress on some really big companies and big applications trying to do Mass Market stuff there I think salana has the best user experience um and I think obviously eth is where today what I would categorize is you know digital native uh internet native nfts are living and where most of liquidity is and so I think that it makes sense to me that most you know most nfts are going to end up on eth that people like or are popular but I think that each of the different blockchains are going to end up having their own tribe their own ecos system um like I think the Creator pass thing that's going crazy right now is uh on near protocol you know so it's going to be a mix of Business Development and uh unique properties of these different blockchains but yeah they're all going to have digital Goods on them yeah Pacman blur only adopt eth right now right do you have any plan to expand to other mainnet yeah definitely um you know just to add on to Frank's answer I would say one one way of thinking about uh you know different smart contract blockchains as effectively as digital cities and if you were to rank eth it would effectively be the the New York City of blockchains um so of course there's going to be other cities there's going to be businesses popping off in them but um you know there's there's one number one city New York City is where all the liquidity is where the biggest projects are going to be um you know for blur similarly when we started building blur we focus on eth because that's the biggest ecosystem over time we you know will expect to expand to other ecosystems uh but of course I think that there's still a lot more to build in eth as well um so we'll focus on eth and of course expand over time I think you meant Soul Korea right number one city yeah yeah I think it depends what you collect right like if you're going to collect like a digital collectible like he's saying like Frank is saying like I think the Crypt Punk is a great example in ethereum and like obviously you moved your assets to ethereum I think for an obvious reason huge fan of that and then you have the ordinal right now that are popping and I think for me like I'm a big rare Pepe collector and I love the fact that're on counterparty but it depends like I don't really care for the rest of the stuff per se like on which chain they are as long as I think they're going to be on a chain that's going to survive and exist uh in in in 10 plus years but I think most people will not know anything about the underlying technology uh where they collect their their Collectibles and next question is we all know there's a liquidity problem in nft Market right now um I wonder how serious it is and how how we can overcome uh this is the challenge maybe uh Pac-Man is a platform yeah I think if you look at crypto more broadly you can see that there's a Dar a lack of liquidity right now right if you look at uh even like crypto exchange volumes like they were the lowest lowest in August uh that they have been in many many years um you know ultimately if we've been through multiple Market Cycles this entire Market operates in different Market Cycles you know Bull and Bear Cycles in bull cycles the amount of liquidity is just off the charts it's insane and then in bar Cycles it feels like everything's you know gone away it's all relative at the end of the day um we know that the you know the Cycles will come back there will be another bull market there will be more liquidity flowing back and even in this bare Market what's been interesting is that the liquidity is still quite impressive you know if you look at even just like nft Marketplace volumes um you know the daily average on openc is around 2 to 3 million the daily average on blur is around 78 to8 million so let's say you know $10 million in daily trading volume for digital Collectibles if you told this to a lay person I think they' be quite surprised at how much economic activity there is even in this bare Market uh but of course as someone who's been in this market it feels uh like it's empty right now compared to where it was um you know all ultimately liquidity in bare markets just dies down but liquidity also comes back in Bulls markets Frank do you have any comments I think you summed it up like I saw yesterday a tweet that was showing the exchange volume on on for major Central exchanges and it mirrors like it basically mirrors the nft volume so I think that is going to be solved in what Pacman described I also just think and I'll talk about this more it's just a retention problem like we just have a deeply leaky bucket where most most people that are the most passionate about nfts like a lot of people in this room are not satisfied with where they're at today and so if this is getting every day we're literally losing users in nfts um I think that we need to just make the people that are here happier and more satisfied with the experience and that's going to make it a lot stronger um as macro Trends Trend Trend upward but there's a deep correlation honestly between broader crypto and nfts in volume yeah okay now let's talk about the Creator royalty that's kind of sensitive issue I think um uh Frank can you as a Creator can you talk about your opinion maybe it's some history or some background um you was crazy because there's a lot of people that put words in my mouth on this and uh I actually like royalties we have an nft business like it's great I love the revenue uh that comes in but I think that and I I made a whole blog on this that nobody talks about long as [ __ ] so maybe that's part of why but to me the real problem is actually just the fact that creators can set the the number percentage because it's this massive variance that you have some projects have 2% some projects have 9% and if you think about a lot of people that use blur a lot of people that use marketplaces if we want them to be trading between collections like going from mutants to deg Gods to doodles to whatever it is if all of them have this huge variance across the board I think it makes it really challenging uh to see how that's going to work I'm a big proponent of like a flat percentage whether that's 1% you know obviously right now I'm blur and openc see it's 0.5% um I just think that if creators are able to set the royalty percentage there's nothing that really backs that number like no business is going oh off of people leaving which is essentially what happens when people sell and that's when royalties are collected we're going to like model out that we actually need 6% or 4% I think that it's a nice to have in perpetuity um but yeah I just think the flat percentage would make sense and you know Pac-Man I think we've talked about it before but that if the marketplace has come to an agreement like we have this invisible agreement at 0.5% I feel like if we bump that up to 1% you know it's too marginal of a difference to move all the list things is the Hope and we can double you know current royalty Revenue if we move it up so that that's what I'm a proponent of but I do think the Creator setting the percentage makes it really really tricky and obviously on salana I've seen happened I've seen it go to 0% and then that sucks and now it's enforced on the contract on the protocol layer but volumes are deeply down you know because you just have this slippage and it's not like nfts are pumping today and so if you're going to take a 5% cut or hit on the trading of it like most people are not incentivized to do that and those prot traders that use platforms like blur as much as we might hate on them or people in the community might blame them you know they do drive a vast majority of the volume every day so I think that it's a really really tricky subject and to me I think the best solution is a a flat percentage Yeah Yeah Frank uh is a 1% or 0.5% is uh enough for the sustainability of the pp nft Foundation maybe for like Blue Chip uh n project like darts or like a BC but like a new NF P nft projects youo it's something that again controversial people hate me for this uh take the time but I mean I do think that it was just way too good for way too long you know like there's some projects that made tens of millions if not hundreds of millions of dollars on royalties alone and and honestly like I I do think that number just needed to go down um it was just so insane and so I I wouldn't mind like I on salana it went to 0% we were just in like 0% land for a really long time so even seeing 05% has been pretty great I'm like appreciative of it I know a lot of projects are upset about 0.5% I'm like holy [ __ ] 0.

5% that's lit um so in a lot of ways I think people need to get creative I think a lot of nft projects that will do well in the future probably won't even have a business attached to them truthfully you're seeing what's happening with ramilia Corp or mades and different kind of cultures within nfts that I don't think need a Central Business uh to become more popular so again I'm I believe I'm a big believer in the nft Renaissance that's going to come up pretty soon where people are going to challenge the status quo across the board and I would more royalties for all creators I do think that it's a really really tricky subject and uh yeah there's no right answer pefully farl you have some something to comment I think it's a really tough one right and I'm sitting next to royalty Killers both sides um obviously playing but you know and I just I stand in a different position where like I was brought into the space like early 2021 and before the whole like metup explored with The Bard y club and and all that stuff right before that and like the person who taught me when an nft was when was like thank you X for example like fous fck render and whatnot it's B it's like all the artists and where I stand is like I I just find it it's hard for me as a whether it's a Marketplace or network participant to tell her Creator what they should set the royalty at and I came into this based on the premise that an artist also it's also weird because you have the pfp projects and the companies have been trade on blur for example and then you have the artist like be right and so it's I find it tough for whether it's open SE blow or any Marketplace it's a weird position there because you can't really tell a Creator what to set the royalty as right if people wants to set a roate 25% and that's either his for his better like good or bad it's his problem right so I I have a hard time telling your creator or project founder like myself or Frank what their royalty should be set at right but again there's also the whole premise of like de centralization the free markets and the trading whatnot it's like such a weird thin line but I just will never be able to tell someone else what they should set the royalties at and I think we should just leave it be I do agree that the minimum set is a little low maybe Pac-Man or openc whatever is can comment on that but I do think that it's very hard that we have kind of I feel like we've dragged the market down a little bit I mean there's a lot of Statistics that are out there I know nfts are down bad because also I think your stats is right all of crypto's down Central exchange volumes are down but one stat that will always like stay and which is true is like evering since the whole royalty debate started nfts have only gone down and it's only been downhill for project Founders I don't rely on nft uh royalties for rug radio to make a dime we marked it at zero a year ago we said we're just going to assume we're never going to make a dime but I work my ass off and I do think that I do I do think that rug radio does deserve let's say seven and a half or 5% royalty that I put on there and I don't think it's anybody's choice to tell me what I should set my RO TI if I was set at 10% % I'll do it you don't have to buy it you don't have to trade it either cuz I'm not selling nfts for you necessarily like a trade like I don't want necessarily my assets to be tradable like on a dayto day basis or farmed like they're being farmed at the moment right so it's like this weird thin line that we're in but again I think be made the best point on the nft like royalty debate which is like it's always going to be a merit system in a way and maybe we can incentivize people who pay their royalties we can create like models where like maybe marketplaces start like I don't know tagging people who pay the royalties and whatnot so it's like a weird debate cuz like when nfts came out it's like the artists and the pfp projects and the utility projects on one pot and in some places like you know if someone rugged their project and what not on the way out I don't really feel like paying them the royalty you know cuz they left right but in a way when it comes to an artist again I was brought on the premise that like my friends like maybe the day they go like their kids and their kids kids and kids kids kids because this amazing technology are always always going to be able to be entitled to this technology but I'm also utopist so it's kind of a different position I'm in makes sense Pacman do you have it pman you any comments yeah the the royalty conversation is always interesting because there's a lot of nuance to the question and usually from the participants involved there's a binary answer that everyone once but the reality is it's it's very nuanced um be is actually a great example so I've had great conversations with him he he actually has um uh at least self-proclaimed a bit of like a hot take around royalties where he shared that he thinks uh you know the royalty should be paid on the buyer side not on the seller side so he's expressed this Viewpoint a number of times but um it's not necessarily popular even amongst you know artists that he's he's close with and I think the reason why it's such a challenging question is because is you really have um you know four different participants right you have the the marketplaces SL protocols facilitating the trade you have the buyer you have the seller and you have the Creator and pretty much every participant has somewhat different incentives uh and the question is is there a business model or Revenue mechanic that basically aligns the incentives across all the participants um um and there isn't really a clear answer to that just yet so for example if you're the seller if you're someone trying to you know sell your nft exit the club typically you don't really care about that club anymore so you're trying to you know minimize any fees um if you're the uh and typically in in today just for context royalties are typically enforced on the seller end so when someone you know lists an item they have to uh set the royalty there and then if you're the buyer you're trying to enter the club so maybe that might be um you know a better participant to try to incentivize to to include the royalties for um and then the creater of course typically wants to maximize the royalty uh the marketplace um might be a little bit more neutral or maybe wants to reduce you know depending on the uh the competitive Dynamics between other marketplaces so you have all these different participants and so far there hasn't really been a uh a clear answer as to like what is the the optimal route um I think as as Frank also mentioned there are different types of nft projects right so if you're like a oneofone artist you're going to have a different business model than if you're like a 10K pfp collection and even if you're a 10K pfp collection you know if you look empirically some of them have monetized off primarily off of mints some of them have monetized off of royalties some of them have monetized by launching tokens um if you look at you know probably arguably the number one pfp collection Crypt punks they famously you know don't have any royalties uh whatsoever so it's a very nuanced question but I think the the core four root of the issue is that there's effectively four different participants and it's quite complicated to figure out how do you align incentives between all the different participants that's that's a really good point is next question is related to the uh previous question I mean in case of uh let's say is absence of a Creator royalty what would be the uh future Revenue model for the uh uh nfts pfp nfts Frank can you yeah I've been saying this for a while I think nfts are probably closest to the Creator economy and in the in the Creator economy in web 2 I mean you're almost expected to just make let's just use YouTube as an example like free videos for the longest time get better and then you monetize it deeply later on in the process and so for me I think like we're going to see a lot of creative things around this so for example you can imag there's some big companies that are doing this now it's uh the idea you mint the nft but they don't hit a blockchain so there in a database you get the utility whether it's like you meet some celebrity or you you know are part like I think autograph was a big one that did this too and it's like later on down the line then you unlock you know the nft on a blockchain my guess is like this becomes a lot more popular because it'll allow companies to sell digital Goods experience the positive like insane net margins on that and then if if there's like a clear secondary market for it then they can unlock it where I think nobody enjoys the Vibes right when you meant and then it's like just down only you know so I think there's examples there obviously we're doing stuff with sponsorships um and and yeah I just think it's going to look different again some projects are doing gaming some are doing like Lifestyle brand stuff so that's where I think it'll just get really really creative um across the board that's my guess yeah I just think nft Founders realize that you just can't depend on like secondary sales to actually build a business a sustainable one and I think it's also a good slap in the face for a lot of people for what it's worth it's like hey like you know you know just going to make make money on the trade of things actually have to build something right uh whether it's product or for us we're in media so it's obviously we sell media on maybe 70 plus creators across the web 3 nft space it's been doing very well for us or I know you guys have done product or different mints and whatnot but at the end of the day like and we talk about this often with my co-host OA Amando on the show but it's like who in the right mind in this current market would want to even drop an nft project you're left with a burden of like 5 10,000 people who are going to bust your ass every single day if your price doesn't go up because they don't understand the fact that like something takes time to build I think you guys all understand how tough it is to build something that works out and also you're not going to make anything on secondary and primary sales right now you're probably not minting out if you have a 10K project and it's probably going to have to be the free meta that came and took over NAC Amigos whatever all this stuff and they crushed it on royalties cuz I thing was like programmed so they have to to get them so it's just like there's no point at this stage time it's super Doomer of me to say it some in some way but I do think building a brand in this space is turbo speed and building a company on steroids so there's no better place to do it than now in this space so I still believe that but nobody in the right Minds wants that because like I mean Frank gets yelled at every other minute right if something if he does something if he you know like Just Smiles wrong in this stage probably someone's going to yell at him or something like that right it sucks been in this position right every single day of my life so in the right mind but at least we came out a time where we had a time where we could sell out on a primary so I could build something out of that and then the royalties left so it's like whatever you know I'm an entrepreneur I'll figure it out right but I think it's just about figuring out like secondary sources of income and actually building a sustainable business it's no different than you know like any other web 2 company but going back to the first question you asked us when nft is we get to build on this new technology and we get to I think do it even better than you know people who managed to build Brands before that MH yeah make a brand and make a value out of it out of it right um so um last question I have is also a challenge for the uh web three gaming as well uh we need a mass adoption nfts we have uh how many people we have uh how many buyers you do you have numbers like eight right um yeah so they're all here yeah daily daily probably like five to 10 thousand in terms of uh like unique participants probably like 50 to 100,000 okay what what would be the strategy or like uh uh ways to for the mass adoption I mean in game we have about like three billion Gamers so um you know only uh with three gamers just uh how many about three million so we have a huge room to grow so what what you what you think yes this is another one of my I get hated on for this take as well um yeah I think the term Mass adoption has become one of the in the canonical like meaningless terms at this point you have like utility Mass adoption storytelling nfts like whatever right and I think the reason I say that is today we literally have a leaky bucket right it's like there's literally people leaving the nft space every single day and so it it the idea that somehow we're gonna make the right marketing campaign and all of a sudden everyone's Gonna Love nfts it's a little ludicrous it'd be like saying you have a leaky [ __ ] boat and you want to go get a million people to come you know be on that boat and so I think it's a retention problem through and through today um and how are we going to get to mass adoption well it's like how do we make nft something that people love so much literally the people here and in the space care the most like they want to see nfts win we all do and if we're unhappy and like people in the community and ecosystem are unhappy today I we can't expect moms and Idaho to [ __ ] love nfts you know tomorrow um just cuz you know some pretty picture was posted or something like that so I think it's just a retention problem in my opinion is where it starts I think um you know something that's very interesting if you look in the history of crypto is there's a lot of focus on mass adoption but typically the way things get adopted is there's some new crypto native thing that takes off and then it attracts new people in so if people remember back in 2018 you know the market in 2018 the bare Market it was like dead dead like there were no use cases like nothing was really functional um it was quite depressing overall and then in 2020 we had dii we had you know Unis swap we had compound we had a and they kicked off this entire defi summer um you know no one was really predicting that those things would be the thing that like draws everyone in so it's very hard to predict what Mass adoption looks like but I think it's obvious to me that at minimum it's going to be some sort of new crypto native use case it's really hard to predict what it is going to be but it's likely going to start you know from the crypto Natives and then Branch out from there I agree with what they're both saying and then to add to that I think what's going to help Branch off so first of all like I think a great example to what Pac-Man saying like frch recently it's like adopted by all the crypto natives Bas is pushing it Brian Armstrong everything then you have you know a bunch of you know I guess Normy creators come in and the next layer and the next layer but I think to add on top what they're saying is going to be creators you know I think like I do think creators are at the Forefront of every single industry cuz you're talking about gaming I mean look at gaming we had Daniel alre CE of yugal laabs on the show last week or two weeks ago and he said it's you know he has the Deep background in gaming Activision y y y and he was saying it was influencers I think what he meant by that was with the creators creating content around the game so that's when the early phase came in and then like 100 thieves and this and this and that so it's going to be creators I mean when you think about the bare Market blah blah blah and you're saying it was dead in 2018 I'm thinking about the bare market now I've never been so entertained why because creators held it down and for me that's why our mission will always be to put creators first creators forward and Empower them and build infrastructure around them so so so much that when the next wave of mass adoption or whatever comes it's going to come at a point or another but focused on the core creators are right now in this room creating content within the space are going to be what are going to bring the next I don't know millions of people cuz me oh look at this guy look at this thread guy oh he's cool I I [ __ ] with him I like his content it's about nft he's cool look at Frank like what he's doing look at furo his Morning Show like it's just like stuff like that oh had to plug this show right but it's just like you know it's just like I think it's going to be creators and I gen mean that and creators are artists artists are creators be is a Creator every day goes viral yeah yeah yeah you have DK motion like right now in Soul I was like in I think in Yong or something has a huge exhibit right but it's nfts in the back of it and then it's what we're doing Etc so I think it's really going to be heavily focused around creators and that's why I think what Elon and X are doing right now is all about like actually rewarding these people yeah that makes a lot of sense um in Korea there are a lot of uh nft collectors as well uh there must be some collectors here so my questions are done so if you have any questions from the floor it's a great time to ask because we have uh the hottest guys in the nft uh industry is there any okay bad thank you very much for your time it was a great talk bullish thank [Applause] [Music] you