There is little doubt that creator royalties provide central appeal for NFT creators looking to make a living from their craft for the first time in their lives. Through this, creators could receive recurring income whenever their works change hands on an NFT marketplace — granting even small creators the opportunity to benefit from this method of compensation.
For decades, only commercially successful artists, musicians, and actors (though they prefer the term “residuals”) had the luxury of “royalties” in their vocabularies. But with the rise of NFTs, the average creator gained the chance to experience this mode of compensation. However, in November 2022, OpenSea came close to shaking up that dynamic when it considered removing royalties altogether on existing collections, following a site update.
Thankfully, OpenSea retracted its commitment to the change following community backlash. But that raised the question: where do other NFT marketplaces commonly used by the community stand on this issue?
The state of royalties in NFT marketplaces
There’s good reason OpenSea received a tidal wave of criticism from the NFT community for even considering removing creator royalties from existing collections. This was no surprise, because it’s the most active NFT marketplace on the internet.
So where does OpenSea stand on providing creators with access to royalties? According to a November 6 blog post, creator fees (as they’re called on OpenSea) will remain for existing collections on the site until December 8, at the earliest. This means that OpenSea may still change its royalties policy for existing collections as it transitions to on-chain royalty enforcement on the platform.
Why? As detailed in the November blog post, OpenSea CEO Devin Finzer believes that enforcing royalties off-chain can harm creators in the long run. “On marketplaces where these fees are optional, we’ve watched the voluntary creator fee payment rate dwindle to less than 20 percent. And on other marketplaces, creator fees are simply not paid at all,” Finzer wrote in the blog post. To truly ensure that creator revenue remains protected by code, NFT marketplaces must shift the enforcement of royalty fees to on-chain, where it can be carried out by code, instead of whoever is running any given marketplace.
And OpenSea may not be alone in understanding the importance of shifting the enforcement of royalty fees on-chain. Created in conjunction with other NFT marketplaces like Rarible, Recur, MakersPlace, Nifty Gateway, and more, the Royalty Registry is a smart contract that enables creators to easily apply on-chain royalty enforcement to their work.
Launched in October 2021, the initiative partially predicted the problems OpenSea would face upon its planned shift toward on-chain royalty enforcement, citing the difficulty of implementing such a feature on older pieces and collections whose royalty agreements were cooked up off-chain. In a blog post published to commemorate the Royalty Registry’s launch, it noted that NFT marketplaces would eventually need to converge on a standard for on-chain royalty enforcement, given that marketplaces like Rarible have already built existing on-chain infrastructure to handle creator royalty payouts.
Finzer also might be right on the money when it comes to how on-chain royalty enforcement will ensure the financial security of generations of NFT creators to come. Case in point, NFT marketplaces like sudoswap and X2Y2 remain popular among traders specifically because they’re royalty-free. Due to the growing popularity of this model, some legacy NFT marketplaces have felt pressure to adjust to this perceived shift in market demand.
Take Magic Eden, for example. Weeks before OpenSea dropped its bombshell announcement, Solana’s leading NFT marketplace shifted to making royalties optional. Now, buyers on Magic Eden can opt to withhold paying creators this fee upon purchase of an NFT. Although this would, on paper, encourage collectors to continue using the site due to lower fees, it sets a damaging precedent for creators. As NFT marketplaces attempt to bring their zero-fee visions into reality, should creators be worried? Getting rid of gas fees may be the priority for the moment, but circumventing creator royalties seems to be the logical next step for some traders. Luckily, not all marketplaces have reacted to the trend in this way.
How NFT marketplaces aim to put creators first
In the case of SuperRare, the marketplace felt compelled to double down on its creator-first mindset following the renewed debate on creator royalties. “Part of the reason Web3 is interesting is that it enables new models that were not possible before,” SuperRare Co-Founder and CEO John Crain told nft now in an interview. “In this case, real-time royalties for visual art were non-existent before.”
However, what makes SuperRare stand out amongst its peers is how it offers collectors a shot at royalties-based benefits in the same way creators do. In July 2021, SuperRare rolled out its collector royalty feature, much to its community’s enjoyment. However, Crain then clarified that this model might not be the right fit for all NFT marketplaces. “Since we’re focused on art it makes complete sense. If a marketplace is selling other types of assets, then maybe it’s not the right move for them,” he said.
Despite verbal emphasis on the importance of creator royalties, NFT marketplaces have experimented with alternatives to this model with regard to benefiting creators. Case in point, after making royalties optional, Magic Eden rolled out MetaShield a month before their controversial announcement. Through the use of this tool, creators could ensure their works won’t end up on marketplaces that don’t honor royalty fees entirely, in addition to monitoring the debt accrued on their works from traders opting out of paying royalty fees.
Sounds good, right? Well, some are understandably concerned over the existence of such a tool — and it doesn’t have anything to do with royalties. Although MetaShield is positioned as a way for creators to better monitor their works post-mint, some argue its potential threat to Web3’s central tenet of decentralization.
Ironically, despite throwing considerable fuel into the royalty debate, OpenSea may have come up with a better method of protecting works from ending up on marketplaces that don’t honor royalties. Also mentioned in its November 7 blog post is a piece of code that creators can add to their NFTs to ensure they stay on marketplaces that enforce royalty fees.
So it seems that OpenSea’s next move may truly be a bitter pill the NFT community needs to swallow if it intends to keep on growing. Regardless of what OpenSea decides to do with its older collections, the future of the NFT creator community is linked to on-chain markets. Putting trust in the code to ensure creators get paid seems more foolproof than relying on a single person working for an NFT marketplace.