Newsletter: The Royalty D̶e̶b̶a̶t̶e̶ "War"

Welcome to issue 128: This week we cover theNFT Marketplace Royalty "War", 0xJustice on DAOs Governance <> Coordination, a16z Part 4 on Web3 Apps <> Protocol Regulation, Joey Debruin on Authenticity in Digital Networks, mainstream news and more...

By Forefront - Feb 20, 2023


Welcome to edition 128:

▹ NFT Royalty "War"
▹ 0xJustice on DAOs Governance <> Coordination
▹ Charlie Durbin w/ "Rentable NFTs"
▹ a16z Part 4 on Web3 Apps <> Protocol Regulation
▹ Joey Debruin on Authenticity in Digital Networks
▹ Collab Land $COLLAB Launch
▹ Mainstream news and more...

--- Let's get into it, plus don't forget to collect this edition.

Week’s Highlight

The Royalty Marketplace War

In Edition 110 of the Forefront Newsletter, we discussed "The Great NFT Royalty Debate," citing Magic Eden's decision to make creator royalties optional. Things have definitely evolved since then.

Blur launched to much fanfare last October, quickly muscling in on an increasingly competitive niche in the market, it's growth and user adoption has been nothing but impressive. It is the largest NFT marketplace by volume in the last 30days according to data from The Dapp Radar. For context, OpenSea has dominated among marketplaces, holding the top spot since the market was in its infancy.

Last week, Blur published a blog post encouraging creators to block listing on OpenSea. They stated that "Our preference is that creators should be able to earn royalties on all marketplaces that they whitelist, rather than being forced to choose. To encourage this, Blur enforces full royalties on collections that block trading on OpenSea."

OpenSea responded by dropping their own platform fee down to 0% for a limited period of time and updating the operator filter to allow sales using NFT marketplaces with the same policies "(including Blur, as they make good on their promise)".

That same day, Reservoir released Loyal, a public good NFT marketplace that implemented their "royalty normalizaiton" tech by design, ensuring that all NFTs exchanged on the platform maintain creator royalties.

Take Note

With Blur also announcing their token launch this week, it's easy to see why so much activity is moving toward low-fee platforms with high opportunity for upside. However, it's clear that the royalty debate won't go away any soon, and exchanges will continue to strike a balance between creator royalties and business optimization.

What's Poppin'

Games Over Governance: Recentering DAOs on Coordination. 0xJustice believes that centering DAOs on governance is a mistake and a recipe for failure. The strength of DAOs is coordination, not governance. DAOs can be decentralized economic game engines and create order from chaos if appropriately structured. They are the gamification of companies. 0xJustice breaks down a series of game design principles and applies them to DAO coordination. His conclusion is that by centering on coordination, we re-enter the token engineering domain and gain its modeling and simulation methods. We reap the rewards of compounding returns by designing testable and reusable game elements. We gain a new level of operational visibility because we can create real-time dashboards on Dune Analytics showing the state of organizations. Great piece.

Rentable NFTs. Rentable NFTs enable someone to use someone else's NFT for a fixed period of time. Charlie Durbin of argues that -- If you subscribe to the idea NFTs are meant to be digital property rights -- all NFTs should be rentable. He lays out his argument in three parts, saying that property rights create investment efficiency, they better value assets, and they foster more inclusive institutions. His bold prediction? "I think rentables will usher in a new era of NFTs where we strictly refer to them as the utility they provide." This is a great piece on the direction of the NFT market and the value that rentables can potentially provide.

Regulate Web3 Apps, Not Protocols Part IV. This is the fourth part in a series, "Regulate Web3 Apps, Not Protocols", which establishes a web3 regulatory framework that preserves the benefits of web3 technology. The central tenet of the framework is that businesses should be the focus of regulation, whereas decentralized, autonomous software, should not. In this fourth installment of the series, the team demonstrates how the framework could be applied in practice to a hypothetical market structure regulation. This analysis shows why the most onerous requirements of the regulation should apply to apps that present the greatest risks to users, whereas those apps that pose the least risk should be subject to less regulation.

Authenticity in Digital Networks. Friend-of-Forefront Joey DeBruin is back again with a great piece on authenticity in professional and social networks. The problem is that for us, he argues, creation on social platforms is a means to an ends --- for connection, opportunity, etc. However, for the platforms we use, it's the reverse: inauthenticity is a great flywheel for engagement, but it actively inhibits the outcomes we want. Joey argues that a simple way to build other feedback loops for authenticity is to notice which things are pulling you away from it. Optimizing for authenticity often means exposing what you don't know, and Joey asks whether community-owned networks will actually bring us further in that direction. All in all, great stuff as usual from Joey and the Backdrop team.

Your Crypto Is Not As Safe As You Think. This piece from Bankless writer Donovan Choy is pretty spooky, but a much-needed reminder. The more a token is moved from its origin chain, the more security risks are stacked on your crypto holdings. Choy runs through some different hypothetical holdings scenarios, explaining the risk that comes along with them and the scale of that risk. While the whole piece is worth a read, either for learning or as a refresher, the conclusion is clear: crypto is safest when you hold your tokens on the native chain. The worst security holding is a shitcoin bridged to a centralized chain with weak security, custodied by a sketchy CEX. Educating newcomers to crypto on these tradeoffs is important, but hopefully less necessary in the long-run as we improve security measures across the board.

The Web3 Wallet Landscape. According to the team at Jericho, wallets have lost a battle against exchanges to attract users in crypto between 2013 and 2021 due to poor onboarding, on-ramping, and lack of usability and safety. The recent emergence of new wallets fixed some of these issues. Several flaws have been solved (swap, on-ramping, security features), but others are not yet widespread (bridge, native integrations, social log-in). The team conducted a landscape of analysis of over 100 wallets throughout the crypto ecosystem. Their conclusions?: wallets should monitor simple usage metrics (weekly wallet usage time or the number of clicks to buy crypto), focus on building a best-in-class UX, and develop defensibility to prosper.

Latest on Mainstream...

Last week, things got a little rocky on the regulation front. Regulators ordered Paxos --- the crypto-services business behind the third-largest stablecoin --- to cease issuing its Binance USD (BUSD) token. BUSD transactions were reported to make up 40% of Binance's trading volume last month. Binance's CEO, CZ, said the exchange made 90% of its revenue from transaction fees and downplayed Binance's connection to the stablecoin. In response to this news, Binance has pulled back on some potential investments in the United States.

Speaking of stablecoins, remember Terra? The SEC sued Terraform Labs, the company behind the failed TerraUSD stablecoin, and its co-founder Do Kwon on Thursday. The SEC alleged that Terraform and Kwon misled investors on a number of issues, including who was using TerraUSD for payments, and called both the yield-bearing Anchor Protocol and the LUNA token "crypto asset securities," according to the complaint. The SEC is charging Terraform and Kwon with fraud, selling unregistered securities, selling unregistered security-based swaps and other related claims.

Signal Bites

▹ Read - Taxation Without Representation
▹ FF Library - Tokens, Symbols, & Schelling Points
▹ Opinion - Bitcoin's Full Potential Valuation
▹ Fresh Take - Time Delays in Governance
▹ Report - 2023 Crypto Crime
▹ Listen - FWB Alex Zhang on Club Podcast
▹ New - $COLLAB Launch
▹ Cool - Poolsuite V3
▹ Thread - on Centralization risk
▹ Tooling - Airdrop by Nouns Builder
▹ Research - on Property Ownership
▹ Techy - zkSync on Mainnet

Check out Signal  for daily top web3 social headlines

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The information in this newsletter is not intended to constitute legal, financial or investment advice and should not be construed or relied upon as such. Any opinions reflected are the opinion of the author(s) of the newsletter only and not necessarily of Forefront. Please DYOR.

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