The Importance of NFT Royalties

The Importance of NFT Royalties - OpenSea marketplace

The Importance of NFT Royalties

NFT Royalties - Opensea Marketplace
OpenSea NFT Marketplace

There has been some controversy about NFT royalties for creators – specifically, whether or not marketplaces should enforce them. 

One by one, major NFT marketplaces have stopped implementing royalty fees on secondary sales. This decision only benefits the marketplace, as lower prices increase sales on their own platforms. 

As you can imagine, this move doesn’t bode well for the artists. The straw that broke the camel’s back was when OpenSea, the most popular marketplace, announced that they would no longer enforce royalties. This has sparked outrage from creators, with major artists pulling their collections from the platform in protest. 

What Are NFT Royalties, And Why Do They Matter?

NFT Royalties are cryptocurrency paid out to creators when their digital collectibles are resold. This fee, which is usually 2.5-10% of the total NFT price, is a major source of income for artists. According to Galaxy Digital, creators have earned more than $1.8B in secondary sales fees over the years, and it’s a big factor for why creators choose to mint their art in the first place.

These fees can be added into the smart contract of the NFT, but it ultimately depends on the platform whether or not they are included. Marketplaces like MagicEden and LooksRare have decided to make NFT royalties optional for resellers. Up until now, OpenSea was praised for their creator-centricity by not doing the same. 

That’s where the controversy has come from – yet another NFT marketplace taking away from creators for their own financial gain. Royalties are important for a few reasons – mainly that they’re a source of passive income for digital artists. They allow creators to benefit from secondary sales of their own work, especially in situations where their pieces are bought only to be resold for quick profit.

NFT Royalties - Bored Ape Yacht Club
Image sourced from Bored Ape Yacht Club

The loss of creator royalties could mean that popular artists may stop releasing new content, and that there is less of a pull for budding creators to start minting their work. 

This debate brings up a much bigger issue, however. 

Why The NFT Royalties Controversy Goes Against Web3 Ethos

Royalties are an important part of the NFT ecosystem. Not only do they provide a passive income for creators, they represent a pillar of the web3 ethos. The core value of the decentralized web is ownership, and when creators have their decisions revoked in order to benefit a large corporation, it goes against what web3 stands for. 

If we allow this move to slide, what will that mean for the future of decentralization? Web2’s main problem – the one that sparked the movement towards web3 – is that corporations would take from creators in order to benefit themselves. 

Web3 is an opportunity for individuals to take (and maintain) ownership over their work. This means that personal information, assets, finances and creations are completely held and controlled by the owner. But does this mean that artists should maintain a level of control once their work has been purchased by another individual? What about the rights of the new owner?

It all comes back to the wishes of the artist when minting their work. If royalties are incorporated into the smart contract of the NFT, investors and marketplaces should respect their decisions. 

NFT Royalties - Altcoins

Is There a Solution That Benefits Marketplaces and Artists?

OpenSea retracted their decision to dishonor NFT royalties after extreme backlash. They made the choice to continue supporting secondary sales fees when creators request them. 

But this doesn’t solve the overall problem: more and more marketplaces are making royalty fees optional for buyers. Simply put, excluding royalties makes the business more money. If buyers aren’t required to pay the extra fees, they’re more inclined to purchase from you

So, is there a way to benefit creators at the same time as marketplaces?

YugaLabs, the founders of Bored Ape Yacht Club, proposed a solution to the royalty debate. They suggested a “community-governed allowlist” that gives creators authority over which marketplaces secondary sales can take place on. This means that artists can decide to only allow their work to be resold through platforms that do enforce royalties.

OpenSea themselves have decided to do something similar, which involves adding a code to the smart contract of the NFT which restricts resales to platforms that do honor royalty fees. 

These solutions have managed to appease creators. Only time will reveal whether or not they are implemented, and whether rival marketplaces will follow suit. 

NFT Royalties - NFTs

Final Thoughts

NFT royalties are essential to the NFT ecosystem, and by association that of web3. Not honoring creators would go against web3’s emphasis on ownership. 

As web3 expands, issues will inevitably arise along the way. The process of trial and error serves as a learning curve – one that is essential to the evolution of decentralization. Hopefully this will be a lesson to decentralized corporations, and not a movement away from ownership.

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