NFTs promised a revolution. A mechanism for creators to finally maintain control over their work and be compensated appropriately. They unequivocally assured us that the code would have royalties. This would ensure that artists receive a steady income for each and every resale. Is that overly optimistic promise disintegrating right before our eyes? The growing trend of NFT lending dapps may be the quiet wrecking ball.
Lending's Rise, Royalties' Demise?
Think about it. NFTfi, Frakt, Solvent, Honey Finance, Arcade and a host of others have created a flourishing NFT lending market. Creators and collectors alike are now using their digital art as collateral to borrow money against. On its face, the idea seems perfectly harmless – even innovative. What happens when a loan defaults? The NFT changes hands. Does the creator still get their royalty?
This is where the “unintended consequences” come to play. We're so busy focusing on the utility of NFTs – the ability to borrow against them – that we're forgetting the fundamental principle they were built on: creator empowerment.
It’s a little bit like the early days of the internet again. Napster delivered on the promise of free music, and in doing so, destroyed the music industry. NFTs Everybody went nuts for NFTs in early 2021 — are we making the same mistake here, choosing short-term financial windfalls over long-term creator sustainability?
Who Protects Creator's Digital Rights?
Decentralization doesn't automatically equal fairness. Just because something has been put on the blockchain does not make that thing impervious to exploitation. If lending platforms aren’t made from the ground up to ensure that creators receive their royalties even when a loan defaults, then creators are getting screwed. Period.
And who should be held accountable if it does? Is it the lending platforms themselves? The NFT marketplaces? The creators? Or is it on us, the public, to hold our industry accountable? The good news is that the answer is likely all of the above.
- We need to ask tough questions:
- How are royalties handled when an NFT is liquidated through a lending platform?
- Are there loopholes in the smart contracts that allow royalties to be bypassed?
- What measures are being taken to protect creators' rights in the NFT lending ecosystem?
Without concrete proposals, we are building a system that is breaking the backs of creators. They are being forced to be players in a market that literally works to destroy their livelihood.
The Siren Song of Easy Money!
The real issue is the siren song of steep profits. Many people view NFTs as the tool through which they’re going to become filthy rich. Lending platforms are only one more tool in that arsenal. It's easy to get caught up in the hype and forget about the artists who are creating the very assets we're trading.
This all sounds a bit like the run up to the subprime mortgage crisis. Banks were offering loans to anyone with a pulse. On the other side of that coin, everyone made a killing– just look at how much housing prices increased. Until the bubble burst. Are we inflating a bubble with our own NFT enthusiasm? Yet this bubble is driven by unsustainable development and a disavowal of common sense.
Worldwide Market Reports (WMR) is selling a report on the NFT lending market, promising to help businesses "navigate the evolving landscape, fuel growth, and outperform competition." However, is this tremendous growth being achieved at creators’ expense? Are we prioritizing the short-term profit over our long-term environmental sustainability?
Ravina Pandya, the legislative aide who wrote the PR, holds an MBA in E-commerce and is an expert in SEO. To that end, she should produce a sequel report that digs deeper into the ethics of NFT lending and its effects on creator royalties.
We need to remember the original promise of NFTs: to empower creators and revolutionize the art world. If we allow lending platforms to erode royalties, we're not just hurting artists, we're undermining the entire foundation of the NFT ecosystem.
Join us in calling for greater transparency, accountability, and a demonstrated, hopping-regulators commitment to upholding creator rights. If we don’t, the “dark secret” of NFT lending may end up being a big one—like scandalously big. Yikes, that would kill the revolution before it really gets underway! Let's not let that happen.
