The Importance of Royalties

Why Supporting Creators is Essential for the Survival of the NFT Market

NFTs and digital collectibles have exploded in popularity over the past few years, with many artists and creators using them to sell unique digital assets like art, music, and other digital media. A critical aspect of the NFT market is the use of royalties, which allow the creator of an NFT to earn a percentage of the sales price whenever their NFT is resold.

However, not all NFT marketplaces enforce royalties. Some marketplaces even removed royalties or made them optional. This is a concerning trend, as it undermines the ability of creators to earn a continuous return on their work and could ultimately harm the growth of the NFT market.

One of the main reasons that some marketplaces are removing royalties is that they are scared to lose market share and desperately try to make their platforms more attractive to buyers. Without the added cost of royalties, buyers may presumably be more likely to purchase NFTs on these platforms. However, this approach needs to pay attention to the fact that creators are driving the popularity of NFTs.

Gifted artists should be able to create and share their work and be incentivized to do that in a way that allows them to thrive. NFT marketplaces must enforce royalties to ensure that creators are fairly compensated for their work. Without the ability to earn royalties, creators are less likely to create and sell their work using these technologies, ultimately harming the growth of the NFT market.

99.9% of all the artists disappear. That’s what happens. — Tim Ferris

Enforcing royalties helps to support the overall health of the space by ensuring that creators have a financial incentive to continue creating and supporting their work. NFT projects need fuel to make them run. It doesn’t matter if it’s from a single artist or a company of people with a roadmap who wants to deliver to their community. In either case, there needs to be fuel.

Marketplaces that Neglect Royalties

Marketplaces like sudoswap and X2Y2 are popular among traders specifically because they’re royalty-free. Existing NFT marketplaces have felt pressure to adjust so they won’t lose market share, despite the potentially catastrophic consequences for creators and the NFT market overall.

Magic Eden, the popular NFT marketplace on Solana, recently raised over 150 million dollars. While this influx of capital has its benefits, it also has drawbacks. To succeed, Magic Eden needs to grow at all costs and do everything to remain the most prominent platform on Solana. To maintain its leading position on Solana, Magic Eden decided to make royalties optional, despite anticipating backlash from the community. This decision has been criticized by many in the NFT community, who believe that enforcing royalties is essential for supporting creators and ensuring the growth of the NFT market.

LooksRare, an Ethereum NFT marketplace, recently made it optional for buyers to pay creator royalties when trading NFTs. Despite the pushback from many NFT artists and creators against the race to the bottom of rejecting royalties, LooksRare chose to let buyers opt out of paying royalties. Although they claimed to still “support creators” by sharing protocol fees, this meant that creators only received a 0.5% share of the sales price on secondary sales, paid out in the LOOKS token.

Royalties: Here to Stay?

While we are seeing many NFT marketplaces move to 0% royalties, it doesn’t mean that royalties will be a thing of the past. Many people from the industry have spoken up against these developments. The NFT community seemed to understand that royalties play an essential role in the development of the space. Prominent artists and creators are making their views known.

The NFT ecosystem would be a tiny fraction of what it is today if it weren’t for creator royalties. — Wylie Aronow, Co-Founder of Yuga Labs

These noises seem to affect how NFT marketplaces look at the situation. Top marketplace OpenSea was saying that it may follow the trend of no longer enforcing creator royalties on secondary sales. Still, after the backlash of these statements, it decided to shift.

Positive Developments in the Royalties Discussion:

  • The new platform Universal Page proposed a standard for NFT 2.0 royalties, allowing creators to enforce royalties only when people sell and profit from their work but not take royalties when they sell at a loss. On universal.page creators can also set multiple receiving addresses with different percentages or fixed amounts.
  • OpenSea launched a tool for on-chain enforcement of creator fees and decided to continue enforcing creator fees for collections.
  • Magic Eden created an open-source Open Creator Protocol to protect royalties. New collections can launch with this protocol to protect royalties.
  • Many NFT marketplaces, like Rarible, Nifty Gateway, MakersPlace, and more, created the Royalty Registry: a smart contract that enables creators to apply on-chain royalty enforcement to their work.

Conclusion

The importance of NFT royalties cannot be overstated. Without the ability to earn royalties, it’s unlikely that creators will continue to create and sell their work using blockchains, ultimately harming the growth of the space. There should be clear royalty standards, and every NFT marketplace must enforce royalties to support the creators who are driving the growth of this exciting new technology.

The removal of NFT royalties by some marketplaces has caused concern among creators. However, the recent developments in the NFT royalties discussion show that there is hope for a brighter future. Many marketplaces are listening to the community and implementing new protocols and standards to protect creators and enforce royalties. This demonstrates that a significant part of the NFT industry is committed to supporting creators and ensuring fair compensation for their work.