Artist royalties are among ‘most compelling features of Crypto’: Zora co-founder

Royalties in the digital art market have become a popular topic since several NFT marketplaces, including Looks Weird and Magical Edenmade it optional to pay royalties to artists.

If you ask Jacob Horne, co-founder of the NFT marketplace Zora, things are heading in the wrong direction.

“Royalties were one of the most compelling features of crypto for artists entering the space,” Horne said in the new episode of Decrypthis gm podcast. “Because it’s been such a long-standing problem in the traditional art world or the music world or any creative art form.”

Horne pointed out that most NFT marketplaces are likely to move toward a zero-royalty policy by 2023, a move that, while pleasing many buyers, could hurt digital artists’ ability to make a living from their work.

NFTs or non-fungible tokens prove digital ownership on the blockchain and provide a tamper-proof record of digital asset transactions. NFTs are most often associated with digital art, but can be linked to other digital media such as movies, music, TV shows, or real-world assets.

Creator royalties are fees associated with the sale of NFTs, typically between 5% and 10% of the sale price, paid by the seller to the original creators of a given NFT project.

“The fact that the early NFT wave touted royalties is such a strong feature,” Horne said. “And that worked for a while, but has brought us to this moment right now where the actual functionality of those royalties is being challenged in practice. And we have to rethink, what does artist ownership look like in this context?”

In August 2022, NFT Marketplace Sudoswap changed to a zero-royalty model, and X2Y2 introduced “flexible royalties.” A growing list of marketplaces followed by either eliminating royalties for creators or making them optional.

In October, NFT marketplace Looks Weird announced that they would no longer enforce royalties and instead offer artists a share of protocol fees. The popular NFT project DeGods also said that in October it would move on to its next “experiment”, introducing a 0% royalty policy.

According to Horne, the space must rethink what artist ownership looks like. “Basically, what happened is that a new number of marketplaces came on the market and allowed collectors and traders to intentionally avoid royalties,” he said. “And then when you see royalties ranging from five to twenty percent, that has a huge impact on how speculative traders approach these things, because they can say, ‘Five to twenty percent on a trade? It’s huge.”

In October, Magic Eden, the most popular marketplace for Solana NFTs, became announced it would no longer strictly honor royalties on NFTs sold through the platform.

“After some difficult reflections and discussions with many creators, we have decided to move to optional royalties,” the platform tweeted. Magic Eden also said it would waive its platform fees for a promotional period in an apparent bid to win back traders.

After several weeks of setbacks, OpenSea and Magical Eden announced that they would integrate royalty enforcement tools.

In November, OpenSea announced a new royalty enforcement system that provides code for Ethereum NFT creators to insert into their newly launched NFTs. These smart contracts point to a blocklist that blocks these NFTs from being traded on any zero-royalty or royalty-free marketplaces.

By December, Magic Eden launched Open Creator Protocol, which it says can enforce royalties for creators on Solana NFTs using the tool. Like OpenSeas, the new protocol allows NFT creators to block marketplaces that won’t honor royalty fees on eligible assets.

“I think the moment we’re in now is, how can we start thinking about new royalty models that don’t rely on secondary trading, but actually start allowing artists to retain ownership of the collection themselves up front,” Horne said, goes on to suggest a universally set royalty rate as a possible solution.

“I’m very sympathetic to the artist side because that was one of the biggest selling points and now it’s being challenged.”