Royalty-Enforcing NFTs to Become a New Asset Class, Says Magic Eden CEO

As many of us know at this point, royalties are one of the biggest and most controversial issues within the NFT sector today. Typically, NFT assets come with the condition that the original creator gets a cut of secondary sales (royalties). However, we’ve seen a recent reversal of this as several marketplaces such as Magic Eden and OpenSea as well as projects like DeGods have either scrapped the royalties requirement entirely or made it optional. 

Now,  Jack Lu, the founder and CEO of Magic Eden, has said in a new interview with Decrypt that royalty-enforcing NFTs could become a whole new asset class. 

Changes in the NFT Sector

In the interview, Lu touched on the very controversial issues of royalties, especially in light of his own company changing its royalties policy. Magic Eden had famously said that it would stick by its royalties policy before changing its mind amidst other marketplaces changing theirs. 

Now, he has said that NFTs which enforce the royalties requirement could become an asset class of their own. We can already see this emerging as OpenSea, a top NFT marketplace, has released a new tool for creators who want to enforce royalties for their NFTs. In its announcement of this, it said that it wanted to give creators the choice of whether or not to attach royalties to their work, a move that sparked some backlash within the community.

“There is a real opportunity to give rise to a new asset class. Some folks really want sovereign ownership, [while] some folks really want royalty enforcement or new business models,” Lu said, adding that he came to this conclusion after speaking with many within the space. 

He did concede that these sorts of NFTs would require some sacrifice on the part of buyers, more specifically a loss of control. This would also require some sort of name change. Given the speed at which many major marketplaces and projects are dropping their royalties requirements, that sort of policy being the default within the industry might soon be gone.

As such, if royalty-enforcing NFTs are no longer the norm, it only makes sense that they have a different name to avoid confusion, though what that name will be is yet to be decided. 

“Maybe it will be more useful that there’s NFTs as an umbrella term and then the current wave of optional-royalty NFTs would be one form, and these royalty-enforcing collectibles would be another,” Lu said. 

What Royalty-Enforcing NFTs Will Mean

It does not seem like the current trajectory of scrapping NFT royalties requirements or making them optional will be halted anytime soon. Lu could very well be right and NFTs could be divided into those that enforce royalties and those that don’t. 

But how would the royalties be enforced in the first place? Lu hinted in the interview that blockchain communities themselves would have to come together to develop solutions to this problem. And the ones that do, he says, will be thriving.