In this article, I embark on a journey through the tumultuous seas of the current NFT climate and what’s next.

How everything started

Before 2019, the NFT market was stagnant, to the point where the Open Sea team even considered shutting down the company. However, in the background, Crypto Punks started gaining momentum. Simultaneously, a new culture was on the brink of exploding in the crypto world - Crypto Art.

Crypto Art played a crucial role in shaping what was to come next. New players like Super Rare and Rarible entered the market, spreading the concept of Royalties.

Royalties, in 2020, became the transformative tool that led to the growth of the industry as we know it today. Royalties are a marketplace deal where a percentage of the transaction is sent to the Royalties Owner.

This concept was initially designed for artists, but it quickly became a successful business model for Blockchain games, Profile Pictures (PFPs), and every project using ERC-721 or ERC-1155, with a few exceptions like ENS.

As the industry grew, the NFT space gradually shifted from artists to brands like Bored Apes, Clone X, Azuki, and more. These companies discovered how to monetize this ecosystem by creating recognizable brands, launching airdrops, hosting events, designing adventures, and offering In Real Life (IRL) redeemable contents.

To be clear Yuga Labs was able to earn more than 31,000 ETH from BAYC, more than 20,000 ETH from MAYC, more than 6,000 ETH from BAKC, more than 8,600 ETH from Meetbit, more than 30,000 ETH from Otherdeed for Otherside and more.

Yuga Labs’ total earnings since April 21 (ONLY from Royalties) combined are more than 95,600 ETH (~$178M), without taking into account mints and some smaller collections/events.

The Importance of Royalties

The royalties economy emerged as the driving force of the NFT space, transforming it into a royalties-centric space that also features art, rather than an art space that simply incorporates royalties. This economic model is what attracted major companies like Adidas, which collaborated with GMoney, Punks, and Yuga Labs to create Adidas Metaverse redeemable products (of which I am a holder).

The royalties model also piqued the interest of AAA gaming companies like Ubisoft, which is exploring the ecosystem for its gaming items. Fashion giants like Gucci and influencers like Gary Vaynerchuk and even Donald Trump have also been drawn to this model.

The 🐘 in the 🚪

Guess What! Royalties in NFTs were just a mental bubble with 0 reality behind it!

Yes! What happened was that an entire industry was born and flourished for two years, raising billions of dollars from VCs with in business terms nothing backing it.

In 2021, the Elephant in the Room was already there for every eye, but royalties became so normal and successful that nobody ever thought they could be out of the game in the blink of an eye. Nike bought RTFKT (CloneX creator’s company) for more than $1B, and AZ16 led a $450M funding round in Yuga Labs with a $4B valuation.

The future of these companies appeared incredibly promising. They had discovered a way to thrive in a new El Dorado of digital objects, brands, and limited-edition products.

HOWEVER… NO, AT LEAST NOT NOW :(

The entire concept of royalties, as we know it, never truly existed. It was merely a commonly used approach by marketplaces that was on the brink of extinction.

Allow me to explain why. It's simpler than you might expect.

NFTs are commonly based on the ERC-721 and ERC-1155 standards. Neither of them enforces or even mentions any kind of Royalty or Tax method.

This implies that when Yuga sets its royalties for BAYC to 2.5%, it modifies the status in the Open Sea smart contract. However, there is no guarantee that Yuga's royalties will be respected. This is merely a common grant model from Open Sea and a few other exchanges.

In fact, during the 2021 bull market, there was strong support from NFT holders for NFT creators, primarily based on royalties. NFT holders were reluctant to trade their JPEGs using DeFi integrations like NFT20 or Items, even though they could have traded them more cheaply and with better capital efficiency using Automated Market Makers (AMMs).

Even Sudo, a highly innovative AMM designed specifically for NFTs, missed out on mass adoption because it didn't respect royalties.

This unique relationship between NFT creators and their communities was quite rare in the crypto space, a space where anonymous users typically seize any opportunity to increase their earnings or arbitrage.

In fact, building a business based on the goodwill of anonymous users in the crypto space can work to some extent.

The Hacker - Blur

The NFT space managed to weather the bear market, maintaining a delicate balance between holders, creators, traders, and marketplaces.

However, in the midst of the bear market, when only a few were making profits and most were down by 90%, this equilibrium was on the brink of disruption. The only question was who would be the disruptor.

Blur emerged as the game-changer, executing a flawless strategy with perfect timing. They recognized that the era of royalties in the NFT space was drawing to a close.

The timing was crucial.

Had Blur been launched during the bull market, it could have ended up like Looks Rare - a short-lived Ponzi scheme enticing traders with the $LOOKS airdrop based on their trading activities.

Blur understood that their airdrop strategy could potentially devolve into a Ponzi scheme, with the token's value likely to decrease as more tokens were airdropped. However, they skillfully maneuvered through this challenge by taking sufficient time and implementing strategic actions to establish Blur Marketplace as a premier NFT platform before the market expectations for $Blur started to decline.

At the time of writing, Blur is the leading NFT marketplace, with more than 60% of the daily volume in the NFT space.

Let's delve into how Blur achieved its supremacy.

The Fees war

Historically, Open Sea enforced a 2.5% Marketplace fee + The Collection Royalties set (usually from 0.1% to 10%) on every trade.

Blur used perfect timing to market to dethrone Open Sea by building an NFT Aggregator designed for Floor Price trades and bulk orders with no fees and 0.5% fixed royalties.

The Blur move started with an ingenious airdrop campaign of the $Blur token, with loyalty points for Floor Price bidders and buyers and it built as much NFT liquidity as possible from it, but this was just the beginning.

This situation attracted numerous NFT whales who took advantage of the circumstances, making NFTs as liquid on Floor Price (FP) as never before. The timing was extremely impactful. Amidst severe bear market anxiety, many NFT holders decided to exit at a loss, and whales played a very complex liquidity game to increase the $BLUR airdrop.

Open Sea tried some moves to compete with Blur's aggressive strategy:

The first move was Open Sea 0 Fees for a limited time back in February, triggering Blur to add the mentioned offensive Extra “Loyalty” Rewards for those who don’t list in Opensea.

The second move was Open Sea Pro, in April, a Blur-like UX for OpenSea with the integration of Gem (An NFT aggregator OS bought a year ago). Open Sea Pro added tremendous powerful features for analytics, order bulks, and whales trades tracking, but still, Open Sea Pro today achieved only a small portion of the Market Share, even smaller than Crypto Punks and X2Y2.

In the meantime, Blur made NFT even more financials, introducing Perpetual Lending With NFT Collateral in May, extra points for Blue Chip bidding, and Trates bidding.

Blur's strategy of introducing a variety of financial tools for NFTs underscores their role as financial products rather than art. This strategy effectively corners OpenSea by pursuing functionalities that OpenSea has been trying to avoid for a long time.

Simultaneously, Blur is exerting pressure on NFT Teams by capitalizing on their holders' desire to earn and arbitrage valuable $BLUR tokens. By dominating the daily volume in the NFT space, Blur forces NFT Projects to relinquish most of their royalties, essentially disrupting their business model.

This leaves OpenSea with no choice but to adapt in order to avoid risking its entire market share…

OpenSea has ceased to enforce creators' fees aka Royalties

This shift is crucial for the space as OpenSea was the last stronghold of the Crypto Art concept, as opposed to the DeFi-like NFT scenario. This update from OpenSea signifies the end of an era for the NFT ecosystem and indicates a capitulation from the industry as we've known it for years. Blur's vision for the NFT industry has triumphed, marking the end of the era of royalties.

Blur has catalyzed a transformation in OpenSea and the NFT culture, steering them away from the crypto art and royalties model. This has left OpenSea resembling a slow dinosaur without a clear direction, struggling to compete with the new king Blur, which has a decidedly more DeFi-oriented vision for the industry and its post royalties new opportunities.

However, Blur normalized the practice of not respecting royalties, knowing that in the NFT market, this approach would be more competitive and was bound to happen sooner or later.

Is it possible to roll back Royalties?

Enforce Royalties by NFTs contracts

New EIPs are there to let NFT creators manage their royalties directly in their NFT collections, having more control over Marketplace decisions like:

• ERC-6105: adds a marketplace functionality to ERC-721 to enable non-fungible token trading without relying on an intermediary trading platform. At the same time, creators may implement more diverse royalty schemes.

• ERC-721C: Built to extend and be fully backwards compatible with the existing standards, ERC721-C and ERC1155-C curb the problems of wash trading and puts the “Non-Fungible” back into NFTs by giving the creator the option to choose their distribution platforms and allow interactions from only those contracts and applications they deem safe and useful.

Both approaches are intriguing and can work to some extent. However, if they are not quickly adopted by most of the major players in the space, those who do adopt these standards at the moment may suffer from limited compatibility between marketplaces and reduced liquidity. This could result in the creation of collections that no one trades because there are no accessible platforms for regular users to do so.

Building a New Open Sea

Yuga was one of the first companies that replied to the Open Sea hard decision:

On Crypto Twitter, there was speculation about a potential response from the company to construct another marketplace that respects royalties. The goal would be to gain approval and broaden their user base with assistance from other NFT teams, while leveraging Yuga's dominant position in the space. However, this would likely involve wrapping Yuga collections and transitioning most of their popular products to new smart contracts, or engaging in significant legal battles against any marketplace in the space to prevent people from trading their assets. While this scenario is possible, in my opinion, it's quite unlikely to occur.

Custom Collection Stores

Some projects have created custom stores for their NFTs, making them tradable only on their platforms. This is another potential approach to preserving royalties. Crypto Punks has always employed this strategy and it continues to work, even though with this solution it’ll become increasingly complex for a new collection to succeed without some form of aggregation.

Law Enforcements

One non-decentralized approach disregarding the "code is law" principle could involve legal enforcement from collection companies, forcing marketplaces to include royalties in their sales. However, due to the regulatory uncertainty in the crypto space, which is still akin to the Wild West, most companies are based offshore. This makes it very difficult to enforce such recognition under the laws of various countries.

Point of no return?

All potential solutions to reinstate royalties have a point of failure. Today's volume is in Blur and increasingly moving towards the DeFi era of NFTs. This implies that enforcing actions against this new world could be risky for both holders and companies. It could render their collections illiquid and exclude them from the game.The era of Crypto Art as we know it has come to an end. However, what lies ahead is more mathematical and concrete - it's what the NFT space should have always been.

What if

Royalties were indeed an impressive tool that supported creators and experiences, steering the industry onto a new path. While I can't predict exactly how, the challenge for the NFT industry as we know it is to find new ways to sustain itself outside of the crypto art cult. This is a mathematical challenge, a true crypto challenge!

In an industry of liquid NFTs, what distinguishes an NFT with royalties from a meme token with marketing fees derived from swaps? Something to ponder on! ;)

Is DeFi the next step?

I can’t predict the long-term success of Blur and how the royalties disruption will bring more attention to its no royalties competitors like Sudoswap, Items, or NFT20. The only secure thing is that the industry is transformed and the next Yuga Labs will introduce DeFi for its NFT collection.

While the demystification of crypto art may seem villainous in the short term, it will transform the industry in the long run. It will make NFTs more liquid, imbue them with more utility value, and pave the way for more financial tools than ever before. Disruptions like Blur and Sudo are what the industry needed to grow, for the NFT space this is the “Uniswap Moment”.

Welcome to the new world where NFT and DeFi come together to explore what's next.

But Wait a SEC!

NFTs have always been a part of DeFi.

Now that we've opened Pandora's Box and faced the reality that NFTs are financial objects just like ERC20 tokens, now that we have the tools to trade them like ERC20 tokens, and now that we've dispelled the Crypto Art myth and acknowledged that Blur is not the adversary of the market but merely capitalized on an unsustainable situation, we can move forward with a clearer understanding of the NFT landscape.

In simpler terms, both NFTs and ERC20 tokens are tradable assets on the Ethereum blockchain. They can be bought, sold, and owned, much like any other asset.

What are the legal differences between an ICO and a Drop?

Essentially, the only difference is the name. Those who have been in the space long enough to have experienced the 2017 ICO bubble have also seen the same promises of utility (plus games) in NFT drops as in ERC20. Sometimes, it's even the same people capitalizing on the confusion caused by the term "Crypto Art" among regulators.

In both cases, a supply of something is sold for ETH (Ethereum). The market cap of a collection or a token is calculated based on the last order filled or the equivalent of ETH in an Automated Market Maker (AMM). NFTs can be as liquid as tokens, with their value often based on the Floor Price (FP). The industry is moving towards treating the collection, rather than the individual ID, as a significant entity.

Once an object is on Ethereum, it becomes part of the DeFi (Decentralized Finance) ecosystem, irrespective of whether it's an NFT or an ERC20 token. They are both tradable assets. Platforms like Blur, NFT20, Items, and Sudo have shown that NFTs can technically be traded in the same way as tokens. The industry was previously in an intellectual bubble, treating NFTs and tokens differently, but it's becoming clear that they should be treated the same, both legally and financially.

SEC is already moving forward

The ICO bubble in 2017 concluded with the SEC beginning to regulate these approaches, albeit in an uncertain manner. They started filing against various projects, leading to a more concrete method of funding. With the rise of the DeFi space, tokens became more decentralized in their use cases and liquidity, making the industry cleaner and more resistant to scams and regulatory scrutiny.

While regulations in the ERC20 space were initially seen as bad news by some, they eventually drove the need for a more decentralized infrastructure, which we now refer to as DeFi. The cat-and-mouse dynamic in the crypto industry is interesting, and in the long run, it tends to promote a healthier ecosystem.

Lawmakers have already begun to classify NFTs as securities, albeit not very quietly. Yes, NFTs CAN be securities! They are not just pieces of art; they are transferable and tradable objects on the Ethereum network. They are commonly sold as investments, whether this investment is driven by the hype of people in a brand and some redeemable content or for some promised off-chain utility like games.

By 2023, it will be undeniable that there are differences between the classic 'degen' investors who invest in an ICO on PinkSale for a new meme token and those who participate in an NFT drop. While their actions may differ, both are purchasing an Ethereum object with the expectation of a return.

So, What Next?

Even in the darkest hours of the blackest night, there is a glimmer of hope, if you know where to look.

Here's the silver lining: the cat-and-mouse dynamic of the crypto space can lead to remarkable developments. DeFi, the first real-world use case, emerged after the demystification of White Papers. If history repeats itself, this means it's time for NFTs to become more decentralized and unlock real utilities that will shape the world!

It’s a new exciting beginning!

A final note for CT anons 👇The NFT market didn't crash because of Blur. It crashed due to a lack of utility, and cult-like markets tend to collapse in bear markets. In fact, the NFT market is now more liquid and healthier thanks to Blur. The Floor Price (FP) of your favorite NFT collection was illiquid before, making the FP impractical.

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