Non-fungible token (NFT) royalty payments have stirred considerable controversy recently, sowing discord between platforms and creators. In an intriguing twist, collectors are sidestepping optional royalty payments, a phenomenon that has been a talking point in the NFT space.
The Undercurrents Behind the NFT Royalties Decline
A recent study from Nansen, a leading data analytics platform, unveiled that NFT royalty payments plummeted to a two-year nadir in June 2023. The all-time peak was observed in April 2022 when these payments accounted for a staggering 28,000 ETH, equivalent to around $76 million, bolstering creator earnings in a week. By contrast, June’s zenith only saw creators pooling in 2,000 ETH, or approximately $3.8 million.
The drastic dip in creator remunerations has been fueled by the emergence of the royalty-optional marketplace, Blur, and the current policies implemented by OpenSea, a preeminent NFT platform. To guarantee creator earnings on OpenSea, collections must incorporate an on-chain enforcement procedure within their smart contracts. Otherwise, the royalty fee defaults to a minimum of 0.5%. In a parallel move, Blur mandates minimum 0.5% royalties. However, in both scenarios, the door is open for collectors to augment their contributions to creator royalties, a practice that appears to be infrequent.
Nansen’s analysts noted the competitive dynamics between both marketplaces, vying to keep royalty payments minimal while encouraging trading. They noted, “Royalties have been on a downward trajectory since February, and Blur has amped up its share of royalties paid, achieving parity with OpenSea.”
Market Dynamics: An Ebb and Flow
Contrary to the recent downturn in June, several distinguished collections have amassed millions in royalty payments since their initiation. As of July 4, NFT titan Yuga Labs has accumulated a colossal $166 million in aggregate royalties across its collections. These include the Bored Ape Yacht Club, Mutant Ape Yacht Club, and Otherdeed for Otherside.
Moreover, NFT collective Chiru Labs has garnered over $58 million in royalties for its flagship Azuki collection, along with derivative projects BEANZ and Elementals.
The report underscored that the tapering of royalty payments commenced before the Bored Ape Yacht Club’s floor price plummeted to a 20-month low and before Azuki’s flawed Elementals mint.
The Great Debate: To Honor or Not to Honor NFT Royalties
The discourse over whether NFT royalties should be honored ignited in October 2022. That was when Blur rolled out its zero-fee marketplace, aiming to woo professional NFT traders and presenting a direct challenge to OpenSea on its opening day. Blur allowed collections to enforce creator fees following backlash from creators and collectors.
Simultaneously, other NFT marketplaces, including X2Y2 and Magic Eden, have recently revised their royalty enforcement policies after a brief period of zero-fee structures. This ongoing shift indicates an evolving NFT marketplace dynamic driven by a delicate balance of creators’ rights and traders’ preferences. As the sector matures, it remains to be seen how the landscape of NFT royalties will unfold.
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