NFT Startup Casualties Pile Up
he past week has been filled with NFT drama, with OpenSea changing its policy for collecting royalty fees and drawing the ire of investors and NFT creators alike. But first, let’s take a look at the latest in a string of NFT startups that are calling it quits.
Recur, a startup that helps other businesses create and manage NFT collections, said on Friday that it’s shutting down on November 16. Backed by metaverse investment firm Digital, billionaire hedge fund manager Steve Cohen’s family office and musicians Jason Derulo and David Choi, Recur announced it raised a $50 million Series A round at a $333 million valuation in September 2021. Cohen was also a member of Recur’s board.
Recur co-founder Zach Bruch said in a post that “unforeseen challenges and shifts in the business landscape have made it increasingly difficult for us to continue providing the level of service and dedication that we have always strived to maintain.”
But the writing has been on the wall for a while. Interest in NFTs has waned dramatically since the middle of last year, evidenced by slumping NFT prices and trading volumes. Big companies have also pulled back from issuing NFTs, with Sega and Disney abandoning their web3 plans and Meta winding down its NFT efforts earlier this year.
Tessera, a startup that let users collectively own NFTs, shuttered in late June. Tessera CEO Andy Chorlian said on Twitter that the company “spent a long time” analyzing the NFT market and its financial position and decided shutting down was the best option. The startup had raised $20 million in July 2022 from Paradigm and other investors.
And earlier this month, Nifty’s, a company that helped brands like Warner Bros. launch NFT collections before pivoting to work with creators, announced it was shutting down. The startup had raised a $10 million seed round in July 2021 from investors including Samsung Next, Palm NFT Studio and Coinbase Ventures. Nifty’s said on Twitter that “the investment opportunities we were working on didn’t pan out, and we now find ourselves at the end of our runway.”
Other startups that help companies issue NFTs are likely suffering too. Notably, MoonPay has been trying to do more business with helping other companies build and manage NFT collections, as I reported in May, after revenue from its main crypto payments business declined.
OpenSea’s Royalty Reversal
In other NFT news, OpenSea changed up its royalty fee enforcement policy last week, a move that highlights fierce competition among NFT marketplaces.
As a quick recap, royalty fees (which OpenSea calls “creator fees”) are used to compensate the original creators of an NFT. The idea is that NFT creators can make money each time their NFTs are sold on secondary markets, in addition to the money they get from selling new NFT collections.
It was customary for NFT marketplaces to enforce collection of royalty fees until X2Y2 announced in August 2022 that it would make them optional. After that, some NFT marketplaces like Magic Eden followed suit. But OpenSea doubled down on them, announcing in November that it would enforce the fees through a new blockchain tool.
OpenSea reversed course last week, saying it would phase out mandatory royalty fees by February 2024. The move drew criticism from billionaire Mark Cuban, an OpenSea investor, as well as Yuga Labs, the company behind the popular Bored Ape Yacht Club NFT collection. Yuga CEO Daniel Alegre said on Twitter that the company will stop listing some of its NFTs on OpenSea.
OpenSea’s short-lived royalty policy is the latest example of the race to the bottom on NFT fees—as soon as one marketplace cuts fees, it’s difficult for a competitor to keep them in place. A similar dynamic has played out with the transaction fees that NFT marketplaces collect on each trade, which are separate from the royalties that go to NFT creators. OpenSea was forced to temporarily cut its transaction fees earlier this year after zero-fee marketplace Blur started grabbing market share.
But the backlash also shines a spotlight on what’s at stake for big NFT creators like Yuga Labs, which was valued at $4 billion when it raised a $450 million seed round led by Andreessen Horowitz’s crypto fund in early 2022. A Galaxy Digital report last year showed that Yuga Labs has reaped $148 million from royalties on its NFT collections.
Overheard
“Sniped a code off twitter today and joined @friendtech. Like the concept and looking forward to what the team can build with this,” NBA player Grayson Allen tweeted on Sunday.
Friend.tech, a blockchain-based social media platform, is the latest web3 craze and Allen is one of its most high profile users to date. The startup, which is backed by the crypto-focused venture firm Paradigm, launched in August and quickly gained traction. Built on Coinbase’s new blockchain Base, Friend.tech has a unique approach: users can sell tokens to other users in exchange for access to a private chat group. It’s still too early to tell if this is a flash in the pan, like the brief craze for “move to earn” startup StepN, or if it has legs.