Royalties have been the subject of many disputes in the NFT community and crypto in general.
NFT royalties refer to a commission or percentage of revenue that a non-fungible token (NFT) creator earns each time their NFT artwork is sold on a secondary market. This allows content creators to earn and maintain a passive income from the initial sale of their original work.
A content creator will always receive 100% of the price of their work during the first sale. During the minting and listing process, the creator sets the amount of royalties they will receive from secondary sales; it is generally between 5 and 10%.
If an NFT sells for $10,000, the current owner will receive $9,000, while the original creator receives $1,000 paid directly to their wallet address.
Royalties apply to almost any existing NFT: artwork, profile pictures (PFPs), tokenized music albums, images, avatars, etc. Royalties are encoded into a Blockchain platform’s smart contract, and for each secondary sale, the smart contract takes care of enforcing the terms and conditions necessary for the royalties to take place. The contract then reserves a percentage which is then given to the original creator, as mentioned above, and the currency is usually whatever the platform supports.
Royalties do not fluctuate with the movement of the market: the sale price of the NFT varies over time due to multiple factors (market demand, scarcity, utility…) and, therefore, causes variations in the amount of profit that creators receive.
NFT Royalties: A Subject of Controversy and Debate
Some people don’t like NFT royalties because it means paying a portion back to the original creator, and this could turn off potential buyers.
On the other hand, other people believe that NFT royalties have become a key feature of the NFT ecosystem as they offer a sustainable source of income to creators, be they artists, musicians, project developers, companies, etc.
In addition, NFT royalties also encourage competition, as the royalty system heavily rewards originality: the more valuable, useful, or unique something is, the greater the chances that buyers will pay royalties to the original creators.
The main parties (content creators, merchants and marketplaces) have long argued and disagree on how to properly define an NFT royalty system. This has led to severe frustration within the community. Some NFT marketplaces like X2Y2 decided to replace the traditional royalty system with optional royalties applied.
NFT Royalties Criticism and Controversies
Like any branch of the cryptosphere, NFT royalties have been the main cause of conflict and debate within the NFT industry. Here are two of the main concerns and criticisms surrounding NFT royalties:
Market manipulation – Some people might try to artificially inflate the price of an NFT, using every tool at their disposal to receive higher royalty payments. discussed optional royalties, and has raised concerns due to uncertainty about long-term sustainability and equity for artists and content creators.
Ethical dilemma: This point is connected to some of the previous points about controversies and drawbacks. The idea here is that removing, reducing or manipulating the NFT royalty system defeats the purpose of Web3 and goes against the standards of fair and decentralized communities.
All in all, NFT royalties provide creators with a continuous stream of income and control over their art, while also benefiting collectors, speculators, and platforms within the NFT ecosystem.
By Audy Castaneda
