The FTX saga rages on, now pulling the NFT community into its tumultuous storm. While everyone's focused on Sam Bankman-Fried's trial, a quieter battle is brewing that could fundamentally alter how NFT creators get paid and how collectors value their digital assets. Are these lawsuits a necessary step to get back money owed? Or, alternatively, do they create a perilous precedent that may strangle the nascent and delicate NFT market at birth?
Are NFT Royalties Now At Risk?
FTX is aggressively pursuing asset recovery. The company has filed suit against NFT Stars and Delysium (Kurosemi) for supposedly holding back tokens: SENATE, SIDUS, and AGI. The suits claim that FTX paid for these tokens but didn't receive the full delivery, and now they want what's theirs (plus damages, of course). On its face, this appears to be a simple contractual dispute. Dig a little deeper, and you’ll find a potential Pandora's Box of unintended consequences for the entire NFT royalty system.
Here's the core issue: FTX is essentially arguing that because they didn't receive the tokens as agreed, they missed out on potential profits. They claim those tokens reached all-time highs. Had these tokens been released immediately, they would have been able to sell them at a much greater profit. Now, extend this logic to NFT royalties. If a project goes belly up and the value of the NFTs plummet, a disappointed purchaser could potentially sue. They might claim that the initial creator should take the loss of their prospective profits for the project’s inability to meet its stated goals. It's a slippery slope.
Royalties are most commonly baked directly into smart contracts, specifically crafted to reward creators from secondary sales of their work. They're a lifeline, especially for emerging artists and smaller projects that can't rely on massive upfront sales. If legal threats like these are successful and become the norm, who would ever want to create an NFT in the first place? The chilling effect on innovation would be particularly devastating.
Vesting Schedules: A Double-Edged Sword
The AGI tokens bought from Delysium were on a four-year vesting schedule. In crypto, releasing tokens periodically is the industry norm. This deliberate strategy keeps out market dumps and ensures that investors are truly committed to the long haul. FTX's Alameda Research paid $1 million for 75 million AGI tokens, with a vesting schedule that was later extended before the bankruptcy.
Vesting schedules protect both parties. Vesting schedules are meant to protect both you and your funders. They prevent the first wave of buyers from being able to flip their tokens immediately and tank the market. In this manner, the project team can continue to focus on developing the project’s success. What is the impact when one party files for Chapter 11? Does that void the vesting agreement?
If the tokens were indeed never delivered, it doesn’t matter that there was a vesting schedule under FTX’s argument. What if Delysium now goes on to argue that the vesting schedule was an essential term of the contract? They could counter that given how much FTX’s bankruptcy shifted the landscape. This litigation could serve as a test case for how vesting agreements are treated in bankruptcy cases. Worst of all, it would affect tokens only partially! Are we heading toward a future where any contractual agreement can be challenged simply because one party experiences financial difficulties?
The Forgotten Voices: Small Creators Suffer
While FTX battles over millions, let’s remember the forgotten voices: the small NFT creators and collectors who rely on royalties for their livelihood and investment. These lawsuits only worsen the inequalities already on display in the NFT space. Big players like FTX can afford expensive legal battles, while smaller creators are left to navigate the uncertain legal landscape on their own.
We can be sure that today’s market data surrounding SENATE, SIDUS, and AGI tokens directly mirrors the uncertainty that these lawsuits have caused. For one, prospective buyers will be less willing to invest in projects that are mired in legal challenges. This would have the effect of further depressing market value and harming existing current asset holders.
It's easy to get caught up in the drama of FTX's downfall and the legal maneuvering that follows. We must not forget that such moves have serious ramifications for the whole of the NFT ecosystem. Before cheering on FTX's recovery efforts, let's ask ourselves: Are we sacrificing the future of NFT royalties for the sake of recouping past losses? Are we designing a future where the very rich are the only ones who can play along? Are we really doing right by the victims of FTX’s implosion? Or are we simply moving the cost to a different set of vulnerable taxpayers and stakeholders? Sadly, the answer, I fear isn’t as simple as FTX would like you to believe. Recouping losses isn’t the key issue; the royalty system is.
