NFTs have been a real blessing for artists and collectors alike. They provide creators with a global platform to depict and sell their work. On the other hand, blockchain technology allows buyers to instantly verify their ownership and the authenticity of an artwork.
This makes NFTs a win-win for both parties. It is one of the reasons why these digital assets have become so popular, with more than USD 42 billion in sales coming this year, per a report from Chainanalysis.
However, perhaps the most significant benefit for artists comes in the form of NFT royalties. This feature allows artists to earn a passive income on the subsequent sales of their work, something that’s seldom possible in the real world.
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Tag along as we explain what NFT royalties are, why artists love them and why the topic was abuzz on crypto Twitter over the weekend.
What are NFT royalties?
The traditional means of producing and selling art would never allow the artists to benefit from secondary sales. In contrast, web3 aims at paying the artists in an ongoing manner. Whenever an NFT is sold, the creator gets a certain percentage of the sale amount, known as a royalty.
Creators can fix a royalty in the smart contract during the minting of the NFT. Usually, the royalties vary from 5 percent to 10 percent, and the amount is automatically sent to the artist’s wallet once a subsequent sale is executed.
Why do NFT royalties matter?
Imagine this: a struggling artist needs quick cash to cover his living expenses. What does he do? He sells one of his paintings for a few hundred dollars and breathes a sigh of relief – he now has the cash to pay EMIs, cover grocery bills and whatnot.
However, after a week, he sees his painting sold at an auction for millions of dollars. He cannot stake a claim on the artwork, nor will he receive any proceeds from the re-sale. This is where NFT royalties come in. They ensure artists can receive passive payouts from the subsequent sales of an artwork.
The music industry has a royalty model too. If an artist is lucky enough to get a royalty deal, they will be rewarded for all the album sales and radio airplay. However, record labels rarely provide accounts of sales honestly. Fortunately, blockchain technology and smart contracts can!
Why don’t traders like royalty payments?
While artists enjoy perpetual re-sale payouts, traders may not. They have to fork out the royalty over and above the sale price. Since NFTs demand thousands, sometimes millions of dollars these days, this royalty fee can add up to a significant amount.
Why are NFT royalties in the limelight these days?
To attract more buyers, several upcoming NFT marketplaces have stopped honouring creator royalties. It has set off lengthy conversations on Twitter, with users going back and forth on whether NFT artists should be paid ongoing royalties for secondary market trades.
It all started earlier this year when Yawww, an NFT marketplace built on the Solana network, launched without royalties enabled. Following suit was SudoAMM, an Ethereum NFT marketplace from Sudoswap that does not honour artist royalties on sales.
Finally, on August 13, another Solana-based NFT marketplace, Solanart, allowed sellers to choose whether they want to pay creators a royalty fee and decide how much they want to pay.
The uproar
Following the launch of these NFT marketplaces, several artists and collectors argued that denying royalties was against the Web3 ethos. Until now, NFTs were an equitable market in which creators were richly rewarded for their work, including ongoing royalty payments.
“We’re building the first blocks of what will become a digital civilization. Royalties are a broader statement that we value creatives. Web2 and the
Others also argued such moves would restrict the ability of independent creators to thrive in the Web3 space.
“Saying no to creator royalties will result in only projects with VC funding to be able to develop anything continuously, cutting out a large percent of the population due to the implicit bias that exists within the VC world,” tweeted the pseudonymous Betty, co-creator of Deadfellaz, an Ethereum NFT collection.
Can you avoid paying royalty fees?
While leading NFT marketplaces such as OpenSea, LooksRare, and Magic Eden honour the royalty features of the NFTs traded on their platforms, it is not a very stringent technological feature. Users can easily evade NFT royalties despite the presence of smart contracts.
For example, a smart contract that governs an NFT (including its royalty payment provisions) will work only on the blockchain where it was created, say Ethereum.
But the same smart contract will not be enforceable on another network, say Solana. In this case, the trade can happen offline, and the royalty to the original creator can be overlooked.
In conclusion
Ongoing royalty payment to artists and creators is the fundamental idea of the web3 ecosystem. However, even with platforms that honour royalty fees, there is a walkaround that can cheat artists out of their deserved payouts.
Therefore, while NFT royalties are a significant boon for artists, the industry needs to work toward building better frameworks to reward creators.
Co-founder of Solana, Anatoly Yakovenko, suggested that creators could start adding instructions to “freeze assets” into their NFT contracts as this would create a harsh punishment for royalty evaders.
