Multi-chain NFT marketplace Magic Eden announced Saturday that it will launch a new Ethereum platform by the end of the year in collaboration with Bored Ape Yacht Club creator Yuga Labs—with a firm commitment to honor creator royalties on NFT sales.

The companies said in a statement that Magic Eden will have a “contractual obligation” to pay Yuga Labs its share of secondary market sales of its future NFT collections.

“We’re very much happy to put our money where our mouth is,” Magic Eden co-founder and CEO Jack Lu told Decrypt.

Lu said that Magic Eden’s overhauled Ethereum marketplace would use new smart contracts—which contain the code that powers decentralized apps (dapps)—with technical innovations that it says will ensure that royalties are paid out during secondary market sales.

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OMA3 (aka the Open Metaverse Alliance for Web3), a consortium of dozens of notable blockchain, NFT, and metaverse companies, announced Tuesday that it has established a working group to determine how best to standardize and ensure the survival of creator royalties on NFT marketplaces.   The working group will include numerous prominent crypto brands, including Yuga Labs, the company behind dominant NFT collection Bored Ape Yacht Club, and Magic Eden, the multi-chain NFT marketplace that began on...

Technical details will be revealed before the marketplace launches, but Lu did confirm that the standard ERC-721 Ethereum non-fungible token (NFT) standard will indeed be in use. NFTs minted with certain “properties of the marketplace contract” will have royalties enforced.

The change will not impact the way that traders interact with Magic Eden, Lu said; for example, it does not mean that they’ll have to identify themselves via know-your-customer (KYC) checks.

Royalties disputes

A creator royalty is a small fee set by the artist or company behind a project and taken from the sale price of any follow-up sale of an NFT. The fee typically ranges between 2.5% and 10% of the sale price, and such fees had initially been widely honored by marketplaces as a way for creators to benefit long-term from their tokenized creations.

But in the second half of 2022, with NFT sales fading, some upstart marketplaces began using workarounds to let traders skip such creator fees, or pay smaller amounts. Major players then followed suit to keep pace, and prominent marketplace OpenSea ultimately decided to stop enforcing royalties this past August after previously committing to honor such fees.

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Yuga Labs criticized OpenSea in late 2022 when it publicly said it had considered moving away from royalties and came out swinging again this past August after the decision was finalized. The Bored Ape creator said that it planned to stop supporting OpenSea’s marketplace contracts with new collections and those collections with upgradeable contracts.

“Obviously, the genesis of this was what we saw happening in the overall ecosystem with secondary royalties,” Yuga Labs CEO Daniel Alegre told Decrypt. “The gauntlet that unfortunately OpenSea dropped made it very clear to us that we, as a company at the forefront of the NFT space, had to stand up for content creators.”

A press release from Yuga Labs and Magic Eden announcing the news appears to subtly jab at OpenSea, noting that the companies have “made it unequivocal that respecting creator royalties is non-negotiable, a clear stance amidst a sea of other marketplaces who turn their backs on creative entrepreneurs.”

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“Going forward, for new collections, Yuga Labs will exclusively engage with marketplaces that uphold these principles, ensuring fair treatment of creators,” the release notes.

Alegre said that Magic Eden—which is also in a working group with Yuga Labs in OMA3 (the Open Metaverse Alliance of Web3) to improve royalties standards—has pledged to address any loopholes or workarounds with this new technological solution.

And this isn’t an exclusivity deal with Magic Eden, either. The companies say that other marketplaces can choose to use the same kind of contracts introduced through this collaboration, and that Yuga Labs hopes to see them broadly adopted. Furthermore, other NFT creators can mint their projects using the contracts to adopt similar protections.

Shifting strategies

Magic Eden, best known for its original iteration on Solana, is one of those aforementioned marketplaces that switched to optional royalties last year after pressure from rising rivals. The platform also launched an Ethereum NFT marketplace last fall, but eventually took it offline ahead of the planned revival.

Lu acknowledged that Magic Eden “went through our own changes” in regards to royalties enforcement on Solana, but that it always wanted to support creators—it just wanted a “technical solution” for that. Such solutions have emerged on Solana over the past year, and now Magic Eden is among the builders trying to enact such standards on Ethereum, too.

“We want to be on the right side of history here,” Lu said.

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Alegre said that he’s confident that this approach of supporting marketplaces that enforce royalties will work, and that Magic Eden will work to address any shortcomings of the tech once it’s in the wild. But he also admitted that Yuga has another potential way of encouraging traders to use such marketplaces: withholding future benefits for those who buy NFTs elsewhere.

The Yuga CEO said that the company will “provide value to holders who engage with the platforms that make the most sense.” Asked if there will be consequences for NFT buyers who purchase Yuga assets from marketplaces that don’t enforce royalties, Alegre replied that his team is “still thinking through exactly what that means.”

“You can imagine situations where we say, ‘Look, if the last trade was done on a certain platform, then certain benefits in ongoing engagement or ongoing experiences may actually not accrue to the holder of that asset,’” Alegre explained. But he said that Yuga would rather not “put the onus on the consumer” to deal with that because it becomes “complicated.”

“The ideal way is actually to ensure that you're working with the right partner,” he said of Magic Eden, “and you direct as much traffic as you possibly can to that partner.”

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That ability to restrict perks and benefits to NFT holders is framed as a potential backup plan for now—a nuclear option, if needed. But Alegre and team hope instead that Magic Eden’s approach will prove to be the solution to flagging creator royalties enforcement.

“We're confident in the capabilities of Magic Eden,” Alegre told Decrypt. “We're obviously leaning in very heavily into this partnership, and we have full trust in Jack and his leadership team. And for now, that’s the approach that we're going to take.”