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Magic Eden CEO: Royalties-Enforcing NFTs Could Be 'New Asset Class'

The biggest NFT marketplace on Solana, Magic Eden, is wrestling with the question of creator royalties for NFTs, after a wave of optional-royalty marketplaces ate into its market share.

Speaking at Solana’s Breakpoint conference in Lisbon, Portugal, Magic Eden co-founder and CEO Jack Lu advocated for a new NFT standard that would “enforce royalties at a hard, technological level.”

“There is a real opportunity to give rise to a new asset class,” Lu said, adding that Magic Eden has spoken to “dozens of creators amongst many, many industries” to canvass their opinions. “Some folks really want sovereign ownership, [while] some folks really want royalty enforcement or new business models," he continued.

But Lu warned that a new standard for NFTs “will have special trade-offs,” adding that “royalty enforcing by necessity means that the creator has some level of control.”

A new kind of NFT?

Lu elaborated on his comments during an interview with Decrypt at Breakpoint. “These kind of royalty-enforcing NFTs don't look like the NFTs we understand today,” he said.

For starters, he said, they will require some degree of centralization. “The holders will need to give up some level of control, or freehold ownership of these NFTs in favor of the creator," Lu explained.

Indeed, they might not even be called NFTs. “I think that a new name might be pretty useful, to be really honest,” Lu said. He added that “NFTs, as a name, has always been an umbrella term,” encompassing the likes of wildly differing tokens such as digital collectibles and soulbound tokens.

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

OpenSea Breaks Silence on NFT Royalties, But Creators Don't Like What They Hear

Similar models have been floated by other major players in recent weeks. Metaplex, which created Solana's NFT standard, proposed a new standard for enforcing royalties. Top overall NFT marketplace OpenSea, meanwhile, created an enforcement tool that lets creators of new projects block Ethereum marketplaces that don't enforce royalties—i.e. OpenSea's biggest competitors.

Lu added that despite Magic Eden having lost around 40% of Solana market share to optional-royalty platforms in early October, the disruption represents an opportunity. Magic Eden has since reclaimed all of that market share since it similarly made creator royalties optional for traders on its platform.

With most blockchains not protecting royalties at the protocol level, he explained, “There is a very good chance that these market dynamics might enforce the same kind of trends to play out” in other ecosystems. “In that sense, I believe that the first ecosystem to come together, address new business models and effectively address royalty-enforcing solutions will be thriving,” Lu said.

“With these types of major structural changes," he added, "there’s a ton of opportunity to be unlocked.”