Supporting artists in NFT marketplaces: The case of NFT royalties
Whether you are an NFT artist, collector, or simply an NFT enthusiast, you have surely heard of NFT royalties and the resulting debate. The debate ensued as some NFT marketplaces dropped their royalties offers to creators.
NFT royalties came about to pay artists for their work when they made both primary and secondary sales. NFT marketplaces set the average at 5%, which enables them to receive income not just from their direct sales but also from the sales the NFT makes after the initial purchase.
What are royalties, and what do they mean for creators?
NFT royalties are an important part of the creator community. Think of it as the fuel driving an engine or gas fees on each transaction on the ethereum network.
NFT creators receive royalties every time their NFT is sold to another person after the initial sale. Royalties support passive income generation so artists can steadily increase earnings over time.
In addition, digital assets increase value over time. Hence, the first buyer might be pretty low, but as the asset value increases, future NFT holders benefit from the sale. Creators receive more royalty payments as the value rises over time.
On the other hand, NFT royalties come with disadvantages. Price volatility comes highly into play in the NFT market. Crypto prices tend to make dramatic swings in a short time, which affects the NFT value. Hence, it affected the value.
In addition, the NFT market has been involved with bad actors looking to produce imitations to ride off of the success of the original creator. Hence, they capitalize on the creator’s effort.
What does having no royalties mean, then?
Even though some NFT marketplaces mention that they would provide a share of the protocol fees instead, the idea has caused infatuation among artists. The reason was that the platforms had sold the artists the idea that they would gain passively from future sales.
As more platforms opt for no royalties, the move is both advantageous and disadvantageous. It simplifies NFT purchases and outright ownership without future payment worries. In addition, pricing is flexible, as artists can make the prices without factoring in future royalties.
However, there is no ongoing income for the artists, so they cannot sustain the practice, especially if they depend on sales. In addition, collectors may be discouraged from making purchases whereby they know that the artist will not receive income from the purchase. Further, it creates an environment that eliminates freedom for artists such that outdated values are upheld.
Platforms that no longer offer royalties
Last year saw many platforms give up on creator royalties. In July 2022, SudoSwap announced that sudoAMM, an on-chain NFT marketplace, included royalties in the same category as fees on the collectors. During the same month, Yawww, a Solana P2P trading platform, launched an NFT marketplace with a royalty-optional status.
A month later, in August, X2Y2 announced they were offering royalties as an option. In October, LooksRare and Magic Eden followed the same route. The announcement accompanied a statement that they understood the matter had serious implications for the ecosystem. Furthermore, they stated that they were looking to see new standards in the market that would protect royalties even without the royalties.
Meanwhile, NFTStatistics discovered that a month after X2Y2 made its royalties optional, collectors opting for artist royalties decreased from 75% to 18%.
Notably, most users mentioned that the tip-jar idea, where users can choose to pay out royalties to creators or not, will integrate into a 0-royalty policy with time.
Platforms still offering royalties
Amid the growing list of platforms eliminating royalties, there are a couple of platforms still honoring creator royalties.
OpenSea hit the news in discussions surrounding NFT royalties when the platform announced in November 2022 that it was removing royalties from its collections. The move brought about backlash from the NFT community, which in turn caused the platform to withdraw its statement. Hence, the platform still offers royalties at the platform level and also those set by the creators.
Nifty Gateway is another platform still providing royalties. Notably, it also has some of the highest marketplace fees. In its help section, the company states that secondary market fees make NFTs special and offer enforceable royalties at both the creator and platform levels.
SuperRare, even though it’s invite only and takes 15% commission off the final sale price for the primary sales, it provides 10% royalties for creators. Furthermore, SuperRare is unique in that it gives collectors royalties-based benefits.
Another marketplace, Foundation, takes 5% off each primary and secondary sale. Even though the fee is quite high, creators get a 10% royalty from secondary sales.
Blur, the NFT marketplace going head-to-head with OpenSea, enforced a minimum royalty of 0.5% on collections not using the filter registry. Over time, the marketplace has mentioned it will increase the percentage by 0.5%.
Meanwhile, Gem, an NFT aggregator acquired by OpenSea, retained its royalty functionality even after the acquisition.
How NFT creators reacted
NFT creators looking to earn more from their NFT in the secondary market will likely list their art on a secondary market honoring royalties. Since blockchain cannot enforce royalties, marketplaces always have the option to remove them from the equation.
Since royalties are no longer guaranteed, it may cause some collections to bring about business models that are subscription-based to allow them to make a sustainable income. Notably, the simplest way to compensate for low royalty revenue is by boosting revenue associated with primary sales. However, the method might only be plausible for established NFT ecosystems that have had good success.
Furthermore, boosting primary sales may not apply in the market due to the market’s bearish conditions.
Final thoughts
Royalties have been a long, contentious issue in the art world. NFTs give creators a way to get payments each time an NFT is sold on the primary or secondary market. Original authors regain full ownership of their work and set their terms without brokers or go-betweens. In the coming months, NFT royalties will keep receiving appeal as they are a game-changer for both collectors and creators. The platforms that have done away with them may return to offering the royalties.
