It all started in the summer of 2022 with SudoSwap.
They cut the trading fees to 0.5% and removed the creator royalties.
Soon after, X2Y2 made a similar move, adding optional royalties.
Last week, Magic Eden, the leading NFT marketplace on Solana, moved to optional NFT royalties as well, sparking an industry-wide debate.
So as of now, more than +30% of the NFT market is dominated by NFT marketplaces that don’t use royalties.
Here’s why this is important:
• Royalties provide NFT creators will cash flow from secondary NFT sales.
• While creators make money from the mint, getting paid consistently from royalties is another great source of income.
• One of the main use cases for NFTs was the monetization available for creators.
There are two sides to this argument, so we would like to introduce you to 2 teams:
Team Pro Royalties
Team Anti Royalties
Let’s hear both sides.
Team Pro Royalties: Creators were promised better monetization on web3 with NFT royalties. Now it looks like, at best, they were misled and, at worst, cheated from another source of income.
Team Anti Royalties: NFT founders make more money from the mints than the NFT royalties. The average NFT creator on Magic Eden makes only 8% of its revenue from royalties.
Team Pro Royalties: While this may be true for 10k NFT collections, not 1/1 artists. Tyler Hobbs, the creator of Fidenza, made $4 million from NFT royalties.
Team Anti Royalties: Sure, but the problem is that royalties are not enforceable on-chain, so traders will find ways not to pay them.
Team Pro Royalties: So we should try to enforce them in some way.
Team Anti Royalties: The genie is out of the bottle. There are many NFT marketplaces that don’t have enforceable royalties, so it would be hard to change that.
Team Pro Royalties: So what are the potential solutions?
Team Anti Royalties: All of them are not ideal:
• Owning a piece of your NFT collection similarly to how projects own a % of their tokens.
• Team Pro Royalties: That’s more similar to equity. Royalties give creators potential cash flow.
• Tip Jar, so NFT traders can give money to their favorite creators.
• Team Pro Royalties: Aren’t we back at square one with the Tip Jar? Donations were available in web2 as well.
• Blacklisting the people who don’t pay royalties.
• Team Pro Royalties: A creator’s main job is creating, not policing the people who don’t pay them.
Our take:
As you can see, we are in a tough place right now when it comes to creator royalties. It’s hard to see a solution, but we feel like the creators were a little cheated by the whole “NFTs are a better monetization too for creators” hype.
The problem is that while most projects make more money from mints than royalties, especially in the bear market, the downstream effects will be worse.
Top artists like Tyler Hobbs can still make a killing from their mints, but what about the small-time creators?
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