Greed killed NFT royalties. The marketplaces that dropped them could be next

Royalties. 

A concept most of us are familiar with — yet before 2021’s NFT boom, something most artists had never experienced before. The increased perceived value of digital art during this time — both culturally and financially — as well as the promise of royalties in perpetuity following an initial sale, attracted droves of artists and creators to begin releasing their work as NFTs on-chain. Communities formed, brands were born, and we saw the emergence of a new pathway for creators to find success through their work.

Every day, social feeds seemed to be flooded with stories of artists making a life-changing sale. Talented creators were suddenly able to bypass much of the convoluted and archaic traditional art hurdles to opportunity, and carve their own course through the power of cryptocurrency, social media and community. This period was short, fast and euphoric. 

As is the case in most brand-new and burgeoning industries, there were problems. 

Despite many creators believing otherwise — royalties were not enforceable at a smart contract level. The point of enforcement always came at the point of sale, ie., through the marketplaces. 

This worked well when marketplaces honored the enforcement of a creator’s set royalties along with their own marketplace fee — some even had this in their terms of use. However, as the market slowed down and competition for market share became fierce, most major marketplaces introduced optional royalties or zero royalties in late 2022 (notably preserving their own marketplace fee for the most part). 

Fierce royalty debates followed, mostly coming from a yes or no, right or wrong perspective. Creators rallied, and a portion of marketplaces flipped on their decision, stating they would support continued royalties. 

As it stands now, many have abandoned this stand, and we face a potential reality where creator royalties may be a thing of the past. A short-lived attempt at a truly fair market for all participants. 

Greed and shortsightedness has cut opportunity and innovation off at the stem — docking the flow of decentralized opportunity to new talent.

It is my opinion that royalties are an essential part of the ecosystem we have collectively grown over the last few years. Royalties play their part in a delicate balance of value exchange that had not been seen in action at scale before. Marketplaces, traders and creators were acknowledged, and people were able to independently have real impact. 

Almost every single Web3 company that started as an NFT project you can name today was initially funded by mint, then a steady stream of royalties. These royalties were then responsible for the astronomical valuations we saw in 2021 and 2022, and the influx of VC funding into said companies — just as marketplace fees resulted in massive growth and investment for the marketplaces themselves. 

This industry was literally built on royalties. 

There are arguments that royalties are not a reliable revenue stream and should not be relied on for brand building — but the fact is, they’re not just brand building for most people and never were. For many, royalties are school fees, new equipment, mutual aid and more. 

By removing royalties for others now a handful of people have “made it,” we cripple momentum and take massive steps backwards. We completely remove the ability for people to build outside of systems that do not serve all equally.

After observing and engaging in the royalty debate over the past year — I am still steadfast in my belief they should be protected. 

No, royalties are not a reliable revenue stream in the depths of a bear market and shouldn’t be the sole income of any company at any time. 

No, royalties should not apply to all NFTs or projects. 

No, the enforcement models we all adopted were not ideal and were worryingly centralized.

But we need to look at this issue of royalties objectively. None of this is established or set in stone yet — we are building the tracks as we go.

A point I want to make very clear is that creators should always be sovereign over how their work is created, published, distributed and handled. Once those elements are determined, a collector is free to choose whether or not to purchase or interact with that work. That is choice. What is not choice, is a person or entity imposing their chosen methods onto the creator.

Creators have realized this, with many choosing to list on their own marketplaces, mint with their own smart contracts, and remove their work from larger platforms. Large brands have realized this, with companies like Yuga openly speaking out against the removal of royalty support from marketplaces. 

We will see this continue to happen. I believe if the marketplaces that made their wealth off the backs of creators continue on the path they have chosen, they will hasten their race to zero — but the industry will continue without them. Trading of NFTs will splinter into purpose-built marketplaces that honor the intention of the creations themselves. Gaming, fashion, fine art, PFPs will have their own platforms, and innovative ways to incentivize the continued concept of creator royalties will allow the industry to continue to flourish and grow.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.