Creators are the backbone of the Web3 space, fueling the content behind NFT projects and uniting culture with the crypto-adjacent world. But many are packing up and heading out as their financial incentives dry up.

“About 80% of my creator friends are done [with Web3],” said Coco, a well-known NFT artist and founding member of the digital art collective Stardust Society. Without a steady flow of creators, brands would lose the source of their primary partnerships, and Web3 the source of its creative potential.

“If you’re not rewarding creators, you get a lack of creative output,” said Jeremy Cohen, head of Web3 investment at Publicis Media. This means less content for new projects and more emphasis on the financialization of existing assets—the very problem that is forcing out creators in the first place. 

The root issue has to do with royalties, Coco said, or fees that are programmed into NFT smart contracts which enable creators to receive a small cut for every token’s resale. In November, Ad Age reported on how these payments were being sidestepped by an increasing number of marketplaces. Marketing experts at the time warned that brands needed to establish guarantees, such as through contracts, in order to protect artists.

Read more: NFT marketplaces pull back creator royalties

But three months later, the situation has unraveled significantly. OpenSea, the largest marketplace for buying and selling NFTs, announced last month that it would temporarily cut protections for creator royalties, reducing the mandatory minimum fee from 5% of the token’s price to 0.5%. The decision rolled back assurances the company put in place last fall, when it held firm on honoring royalties for existing collections, and even went so far as to block marketplaces that made royalties optional. 

In a Twitter thread announcing the new policy, OpenSea wrote: “We thought we could catalyze widespread enforcement of creator earnings, and we hoped others might come up with more resilient solutions—this hasn’t happened.”

Shiva Rajaraman, OpenSea’s chief business officer, told Ad Age in an email, “The policy change we made in February was necessitated by the massive cultural shift happening in the NFT ecosystem right now: cost-sensitive collectors and power users are dominating supply and demand, and zero-fee NFT marketplaces are emerging to serve the needs of this newly segmented customer base.”

Fed up, creators are fleeing the space. Mido is a former NFT artist who dropped out of Web3 in August. She told Ad Age that while her departure pre-dated OpenSea’s reversal, the general treatment of creators contributed to her leaving. 

“The creator-friendly, democratizing environment was nothing more than a meaningless ad campaign to onboard more people in Web3 and increase the liquidity of associated coins,” she said.

Lin Dai, co-founder and chief executive of Web3 technology company OneOf, said that even his brand clients have been shocked by the deterioration of creator royalties. He specifically called OpenSea’s reversal “an about-face.”

Indeed, OpenSea in November told Ad Age, “Marketplaces should not enforce business models for creators, creators should.” Its capitulation followed pressure from upstart marketplace Blur, which encourages high-frequency trading by minimizing ancillary fees including creator royalties. The business model has propelled Blur past OpenSea as the top NFT marketplace in terms of monthly trading volume.

OpenSea’s new policy still protects NFTs that are minted using a tool that bars the token from being sold on non-compliant marketplaces. But this feature has been criticized as a way for OpenSea to permissively embargo its competitors. It is also only applicable to collections dropped after its rollout last November, leaving all pre-existing collections in the lurch.

A different side of Web3

The erosion of creator royalties has to do with “the marriage of the Web3 vision with the reality of business,” said Publicis Groupe’s Cohen.

In a depressed market, players will do what they can to maintain market share, even if it puts them in an undesirable position in the short run. This explains why OpenSea, in addition to cutting protections for creator royalties, eliminated all other fees it previously levied on trades, effectively transforming its business model overnight.

But for brands hoping for an eventual end to the brinkmanship and a return to the idyllic “Web3 vision,” there is reason to believe the current reality is a feature of the space, not a bug.

OpenSea noted in its announcement on Twitter that roughly 80% of total NFT trading volume does not currently pay full creator earnings. This means that the vast majority of NFT activity shows little regard for supporting creators. Such a sentiment clashes with the so-called Web3 vision, which proponents have long heralded as an empowering environment, where creators can earn well beyond the limits imposed by Web2 walled gardens. 

Mido said she saw a different side of Web3. “What I learned the hard way was that the majority of buyers into my collection really only wanted to see the collection price increase so they could flip for a profit. They never engaged in [the project’s] initiatives and instead needled at me and my team to do something to raise the price.”

Alexander Taub, co-founder and CEO of social platform Upstream, said that this kind of behavior drives people out of the space, and makes it very difficult to recruit new creators to Web3. Taub is co-founder of Goblintown, a popular NFT project that generated all of its revenue for the founding team through creator royalties.

The unwillingness to pay creators, according to OneOf’s Dai, is a speculator’s philosophy born out of the crypto bear market: “If I lose my hand, I’m not tipping the dealer.”

Cohen, on the other hand, places less of an emphasis on current market conditions and more on the skepticism that buyers have built up over the past year and a half. Many in the NFT community, he said, have been burned by rug pulls—a type of crypto scam—and projects that did not deliver on their roadmaps.

Regardless of how the behavior reared its head, the fact is it has become normalized. This is an important temperature check for traditional brands, not only for the sake of protecting their creator partners, but also for the sake of their projects themselves. How does knowing that most of your Web3-native audience is more interested in price than real engagement affect your strategy?

Shaky ground for marketers

An environment where creators feel unwelcome is not auspicious for traditional brands. It is well-documented that in order to show up authentically in Web3, marketers should aim to partner with people who are native to the space. These have far and away been creators.

Without their guidance, brands will lose touch with the wants and needs of Web3 communities, launching projects devoid of value that enthusiasts can sniff out a mile away.

There is also the possibility that bereft of a diverse flow of new projects, the space will grow stale with speculative trading. The rise of the Blur marketplace has already shown the outsized influence of NFT flippers. Such an environment is an issue of brand safety, said OneOf’s Dai.

In a more immediate sense, some brands may already be feeling the sting of marketplaces’ changing policies. Adidas, for example, teamed with Prada in January 2022 for a digital art project called “Re:source” that combined NFTs from 3,000 creators, each one of whom would receive a cut of revenue for each sale of their token. But since these NFTs are selling on OpenSea, and were launched before the rollout of the platform’s enforcement tool, the creators may not see the shares they deserve.

“Decisions like this put our promises to our creators up in the air—which goes against our values as a brand, wrote Erika Wykes-Sneyd, VP of Adidas’ Web3-focused Three Stripes Studio, in an email. “We hope for a wider change in marketplace approach that reaffirms and supports our collective need to reward creators for their work.”

In spite of their worsening situation, plenty of creators are choosing to stick around Web3, yet there remains a specter of confusion bordering on dismay for the future. Last month, Richerd, a Web3 influencer and founder of NFT minting platform Manifold, wrote on Twitter, “Creators are the heart of Web3. If we’re not supporting creators, than [sic] what are we even doing here?” The tweet received over 1,000 likes, as well as retweets and supportive comments by some of the biggest voices in the NFT community, including artists Fewocious, Betty and Doodles co-founder burnt toast.

“Honestly, I would leave the space too if I wasn’t a project founder,” Coco told Ad Age. “I have a responsibility to make it work.”

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CORRECTION: A previous version of this story incorrectly referred to OneOf as an NFT marketplace.