Over the last few months, much ado has been made about NFT creator royalties in our corner of the metaverse. After a lot of internal discussion about how we’d like to approach it at Hook, we’ve decided to add a mechanism for creator royalties into the platform.
To incentivize NFT creators to help us test out this new feature, we’re offering a royalty of 50% on protocol fees to creators that register a royalty treasury address with us. Hook recognizes the importance of royalties to sustaining NFT projects.
How did we get here?
As NFT collectors, we love creators and want them to get paid. Many creators, including some of our favorites, have built business models dependent on royalties. On the other hand, as a NFT x DeFi (MetaFi) company, we know that royalties are not enforced on-chain and that royalties work against collectors, creators, and active traders' interests when you account for how they distort the market. Ultimately, traditional marketplaces don’t have a choice but to abandon royalties eventually or to shrink.
As a MetaFi company, this isn’t necessarily the case for us. We’re creating a net-new trading behavior, with completely different economics, that supports a new type of royalty for creators. Today’s traders pick options because of the leverage, not the low fees. When a trader purchases an option on Hook, the fees are charged on the option premium instead of the floor price, meaning that they represent a small percentage of the exposure that trader is buying.
Better yet, when traders buy options, they’re betting that the floor price will increase. The value of the underlying NFT has to increase to more than the option’s strike price + the premium for the trader to make any profit at all. Not only does this mean that the trader is aligned with the project creator (they both want the project to increase in value): a small creator royalty doesn’t radically change the types of trades that you’re able to make using the platform.
We’re always building Hook with the idea that we could collaborate with project creators. Against the backdrop of MetaFi companies eliminating their business models, it felt like a good time to reach out with a different message.
Royalties are just one way that project creators can earn money using Hook. We also partner with projects to help them write options using some of their retained supply, which creates a significant additional revenue stream in the form of option premiums. Get in touch with us about this in our discord.
Finally, the bear market has made it increasingly clear that NFT communities have fragmented between long-term holders and active traders. These groups are often in conflict. Options are a pathway that opens space for the active traders in a side market that benefits the holders - a true win/win. Options allow communities to embrace traders as a value-add component of the ecosystem that will drive revenue to the project.
How does it work?
Our first experiment with royalties is pretty simple. The owner of a supported collection can come to Hook, and we’ll split our protocol fees with them 50/50.
Let us know what you think by joining our discord!