In the Game of Royalties, you either win or you die. In the mythical NFT world, families of higher nobility scramble bitterly to gain power over the seven kingdoms and the NFT throne.
The House of Royalties is in danger. One after another, the Lords are rebelling and choosing to forbid royalties for fear of losing market share.
First of all, let’s make sure to explain what royalties are and why they are so important!
NFT royalties are payments to compensate NFT creators: they pay the creator a percentage of sales. Royalties are usually set by the NFT owners during the minting process and come from secondary sales.
Royalties are an important incentive alignment to ensure that:
NFT creators can receive passive income perpetually if their art is successful;
NFT projects can have a sustainable income to fund their team and roadmap and make sure to keep building and delivering.
Up until now, royalties were arguably *THE MAIN *incentive for projects to be successful. As such, royalties can be a measure of a project’s success, and together with new mints, they are the main income stream for NFT projects.
The more people would buy and sell, the more $$$ the team would make, aligning the incentives of the team and users for long-term success.
Creators moved in swarms to the NFT world because they were finally offered the possibility to be fairly compensated for their work;
Teams relied on royalty revenues as a constant income stream to sustain their operations and deliver on their roadmaps.
The idea of zero royalties was already around in NFT circles for a while.
Already in August 2022, the decentralized NFT marketplace Sudoswap had launched an automated market maker that set artist royalties to 0%.
Arguably, the 0% Royalties rebellion became one of the main arguments on Crypto Twitter (CT) when Lord Frank from the House of DeGods decided to front-run the issue and announced that all DeGods NFTs would move from 9.99% to 0% royalties.
The move was highly controversial, with many criticizing the founder for profiting from royalties only to then switch sides. Based on the total volume DeGods had gathered about 150k SOL from royalties.
In the upcoming days, MagicEden, the leading NFT marketplace on Solana followed suit and announced their introduction of optional royalties.
They also launched a Creator Monetization Hackathon to develop pro-royalty & creator monetization tools to find alternative solutions.
Supported by data, they argued that:
..the market has been shifting towards optional creator royalties for a while. These charts show the cumulative wallets that have used optional royalty marketplaces to buy or sell NFTs.
Ever since then, NFT marketplaces are then left with a difficult conundrum.
Do they bend the knee and forbid some of their own revenues as well as royalties when faced with the risk of losing market share?
**Or do they keep enforcing them? **
The last development occurred on the 27th of October when LooksRare announced that they would no longer support creator royalties by default. Instead, they would let buyers opt into paying royalties.
In an effort to mitigate the negative impact of this change, LooksRare decided to redirect 25% of its protocol fee to creators. This means that 0.5% of each sale will be directed to creators.
Still.. this is nowhere close to the 5-10% usually charged by creators, but it’s definitely a step in the right direction.
LooksRare justified its choice by arguing that “the growth of zero-royalty marketplaces has eroded the general willingness to pay royalties throughout the NFT space”.
Opensea, the leading NFT marketplace on Ethereum has, for the moment, continued enforcing royalties.
Everyone is waiting for their position in the debate: what are they going to do? Their decision will most likely result in a pivotal moment for the entire industry.
One of the alternative solutions proposed to safeguard creators income is to give them the possibility to enforce royalties at an on-chain level like Metaplex is developing on Solana.
Further solutions to support Creator Monetization are expected to be revealed in Lisbon, at the Solana conference happening in November 2022.
The Saga continues.