Market Analysis
Oct 17, 2022
Marketplaces, which they argue is a superior business model for both buyers and sellers. Solana NFTs are at the center of a new round of the ongoing debate about whether or not creators should be paid for their work. Markets that do not pay creators are gaining customers and market dominance in a way that Ethereum NFTs have not.
Before diving into this piece, you may want to catch up on some relevant stories, like the "Crip Ya Enthusiasm" video with Snoop Dogg and Astro Project has been released, or Macau will recognize CBDC as valid currency.
Since its launch a year ago, Magic Eden has dominated the NFT marketplace on Solana, capturing 90%+ market share and paving the way to a $1.6 billion valuation in June. But its hold on the Solana market has been slipping quickly in the past few weeks, as both well-known and new competitors have been able to attract NFT traders with the promise of transactions with no royalties. Solana NFT market fluctuations seem to have cornered Magic Eden at this juncture.
On Wednesday, the company announced that it was "teaming up" with Coral Cube, which is a place to sell and buy digital content that doesn't charge a fee for NFT transactions. Users will have the "power to select what royalties on our site will look like," Magic Eden has hinted.
According to Decrypt's interview with Tiffany Huang, Head of Marketing and Content for Magic Eden, the firm would "defend" its brand by maintaining creator rights. In an apparent effort to have it both ways in a dynamic market, it will also provide the option for traders to sell NFTs through Coral Cube without having to pay royalties. Developers of NFTs usually set royalties between 5% and 10% on their tokenized works of art, profile pictures, collectibles, and video game goods. This is true no matter what blockchain network they use. Some people think that NFTs are an important part of the Web3 value equation because they give content producers rewards that last forever.
It's a part of the smart contract, or the autonomous code behind NFTs, but it's not inviolable. That is, they are not always followed. Some marketplaces may be able to code around them to make it possible to buy and sell NFTs without paying author royalties. In a down market, even a reduction in costs by 10% may have a substantial impact on major transactions worth tens of thousands of dollars or more. The creators and companies that rely on royalties for income have been irritated by the sites that facilitate this practice, yet the platforms are growing in popularity on Solana among dealers.
Yawww made the initial move on Solana by releasing a platform that didn't pay NFT creator fees, and then the early Solana marketplace, Solanart, reversed course and made creator royalties discretionary for NFT vendors thereafter. Even more merchants are abandoning Magic Eden in favor of the newer Hadeswap. The sites that facilitate this practice's results were visible almost immediately. The NFT marketplace has found that Magic Eden's Solana has lost market share over the last few weeks. As can be seen in the graphs, its market share has been steadily declining over the last several months, from 89% to 79% in the past month, and even further, to 61% and 58% in the past week and 24 hours, respectively.
The Newcomer was a shocking drop for a market that has been almost unchallenged over the last 12 months. When leading NFT marketplace OpenSea entered the Solana arena in April, the marketplace, Solanart, and Magic Eden's market share (OpenSea has claimed only 2% of trade volume over the previous six months), things were different. According to an interview that Decrypt conducted with the alia SOL marketplace, founder of MonkeDAO and managing partner of Frictionless Capital:
Magic Eden had such a dominant position that niche players had no choice but to pursue a 0% creator fee royalty strategy to take market share and move OTC volumes back into marketplaces. Once Yawww started the trend, there was no going back.
This shift occurred as a result of the continuing discussion regarding whether or not NFT royalties are a sustainable revenue model for Web3 firms, particularly given that certain markets choose to disregard them. The DeGods project tweeted about dropping royalties, making an important movie in the community:
In contrast to other Solana NFT exchanges, Hadeswap is brand new. Instead of using standard NFT listings, Hadeswap uses an automated market maker (AMM) framework similar to that of decentralized exchanges like Uniswap to make it easy to trade cryptocurrencies. Right now, royalties are turned off, and when NFTs are sold into liquidity pools, the pool's developers get trading fees.
It takes a similar tack to Sudoswap's SudoAMM, an Ethereum-based NFT trading platform that went live earlier this summer and contributed to the prior discussion about paying creator royalties. Pseudonymous HGE, the man behind OpenDAO and the man behind the ABC project, collaborated on the creation of Hadeswap to include a royalty for NFT creators in their calculations. In the future, Hadeswap will charge ABC NFT holders a 0.5% platform fee, which will be distributed to them alone. Currently, "creators earn so much more in royalties merely by [offering] liquidity," HGE stated.
Solana NFT collectors have been talking about whether or not Magic Eden would avoid paying royalties to regain market dominance for weeks. When the firm tweeted that it had "much to tell" on Wednesday night, it was keen to clarify that the announcement would not include a reduction to zero royalties for Magic Eden. On the other hand, Magic Eden said that it was "joining forces" with zero-royalty marketplace and aggregator Coral Cube to "accelerate their way to becoming the largest and greatest NFT aggregator across chains." Huang of Magic Eden confirmed to Decrypt that his company is not buying Coral Cube but is instead "partnering" with the marketplace. The agreement's terms were not made public as of this writing.
While the Coral Cube partnership may have come as a surprise to some, others more familiar with the Solana organization already knew about it. In fact, one prominent NFT collector even referred to it as the "worst-kept secret in the history of NFTs." In the wake of the news, Hyperspace co-founder Bryan Jun tweeted, "Now you know," accompanying a picture of the Coral Cube emblem and the words "Magic Eden (0 Creator Royalty)."
In the last week, Hyperspace, an alternative Solana NFT aggregator and launchpad, started including Coral Cube purchases in their Magic Eden volume reporting. It tweeted on Wednesday that "you" are right about the future of Solana NFTs, which suggests that you'll be able to help shape how they grow. We, along with [Coral Cube], will let traders choose the parameters for royalties on our platform. Use your purchasing power to have your say.
Using data from Magic Eden, Huang showed that Solana's creator royalties have been going down for a while. The graph below shows that since about May, the percentage of secondary market trade volume that goes to royalties for the top 50 Solana NFT artists has been steadily going down. Last night, Magic Eden sent out tweets with relevant information, likely to try to get a partnership with Coral Cube in the tumultuous and quickly changing Solana NFT market. It's possible that both the lower royalties set by popular projects and the fact that some markets see royalties as optional are to blame (or nothing at all).
For weeks, Magic Eden had been dropping hints that a strategy shift was on the horizon. At the end of September, when Magic Eden saw its market share dwindling and criticism for outages, the firm tweeted, "Is it time to disrupt our business model?" In a Twitter response back in July (which has since been removed), Magic Eden had said that it would not be adjusting royalties, instead saying that questions about royalties are up to NFT creators, not marketplaces. Due to competition and evolving public opinion on creator royalties, the company's position now looks to be much less firm than it once was.
Do you want to be updated on the most recent NFT and crypto market news, as well as other web3-related developments? Follow us on Twitter.