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Q&A: Immutable’s Alex Connolly on Protecting NFT Creator Royalties


blockworks.co 04 November 2022 16:54, UTC
Reading time: ~4 m

Digital collectibles startup Immutable is doubling down on its layer-2 blockchain scaling solution for NFTs in a bid to better enforce royalty payouts, the company said Friday.

It plans to expand how the unit, ImmutableX, works by including all Ethereum-based NFTs, plus other blockchains compatible with the Ethereum virtual machine (EVM), via a whitelist for smart contracts that honor royalty fees overseen by Immutable users, as well as a corresponding blacklist.

The new setup includes NFTs stemming from popular blockchain-based games on the platform, such as the role-playing game Illuvium and trading card-focused Gods Unchained.

GameStop’s first NFT marketplace, meanwhile, went live on ImmutableX Oct 31., after debuting a public beta in July. The marketplace now offers in-game NFT assets from Web3 games built on ImmutableX.

Blockworks caught up with Alex Connolly, one of Immutable’s three Australia-based founders, at the NFT London conference this week to learn more.

Blockworks: Immutable has already implemented enforceable royalties. How are you taking this a step further?

Connolly: Immutable is expanding royalty enforcement to all NFT projects — games or not — on Ethereum, so users can choose to opt in or not if they want to protect royalties in this fashion.

Enforcing royalties has been a consistent challenge for games. It works on Immutable’s application-specific rollup, but as soon as you want to do an Ethereum drop with royalties — or a drop on any sort of EVM chain with royalties — then, suddenly, no one’s royalties are enforceable.

The way the ERC-721 token standard works makes it extremely difficult to enforce royalties on a public blockchain. And, basically, what we announced today was that we have a novel design for how to do it with the same degree of enforceability on a publicchain.

Blockworks: Can you go into what an application-specific roll up is and how it differs from a general zero-knowledge rollup (zk rollup)?

Connolly: There are two types of zero-knowledge rollups. The first-generation ones are application specific because they have fixed functionality. So, it’s quite easy to program in — you have to pay your royalties. But, when you have smart contract-enabled zk rollups, like zkEVM or StarkWare, suddenly you lose that functionality.

Our goal is to be able to offer both types of rollups to our customers. So, you can either use an application-specific rollup and get lots of great dedicated performance. Or you can use a more general rollup.

But up until now, our customers that went with a more general rollup were choosing to give up enforceable royalties. Now, we’re in a position to say, “Hey, we can make your royalties enforceable, no matter where you are.”

Blockworks: What do you think of NFT marketplaces that have gone royalty optional?

Connolly: The problem with marketplaces at the moment is that the only option that exists on public blockchains is not enforceable. So, up until now, it’s just been a sort of a goodwill thing if marketplaces have left it on.

There was almost $2 billion in royalties paid to creators last year. With $2 billion of income from streaming, you can build a business around that. If you’re a game, you can redesign your economy around that and your monetization can change.

But to go from that to the possibility that you might actually get $0? That is a huge swing that is totally untenable for most creators.

Blockworks: Let’s talk about the GameStop NFT marketplace adding support for ImmutableX and its progress so far.

Connolly: I’d say, due to the success of the GameStop [NFT marketplace] launch, we’re firmly second behind Ethereum in terms of NFT volume on-chain. And we think that there’s still a ton left to do, including some user experience things that still need to be ironed out.

GameStop has really invested in making this partnership, and their marketplace, extremely successful, because they want to reinvent their business model and find new sources of revenue. It’s fantastic to see such a major brand really going in on Web3.

Blockworks: Over a dozen new games have recently been added to ImmutableX. What are the main selling points?

Connolly: The thing that probably sets us apart more is we are really focused on gaming. A lot of our competitors sometimes have a marketing campaign to target gaming, but there’s no product that’s in any way actually better for gamers.

We are such strong believers that Web3 games will be a dominant force in gaming, but also that the solutions gaming needs are not the solutions the art market needs.

When you have tens of millions of people trading swords inside a game, it’s very different to people trading a $10 million digital art piece. They need different technology and they need different experiences.

So, why even announce the royalties enforcement? Because we care about games being sustainably successful.

This interview was edited for length and clarity.

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