Artists weigh in on the battle for NFT Creator Royalties

In June 2021, during my first ever interview with a prominent non-fungible token (NFT) collector, I learned of a Web3 silver bullet. As a recent freelance writer who left a paid media job to pursue a freelance career, scarcity was on my mind.

I wasn’t concerned with the “good” kind of scarcity we talk about in Web3 (the kind that makes digital art more valuable because of a limited supply). I was instead concerned about the scarcity of resources available to creative people to protect their intellectual property (IP) – this includes writers like me who continually generate new ideas for corporate entities that can then repackage, reuse, publish and resell creative works in many different shapes that they want.

I chose self-employment after realizing that companies I had written for in the past would always have the right to turn my articles into newsletters, ebooks, social media threads, digital courses and more, but I would never have the right to further compensation other than my regular salary when that work was completed.

In a traditional creative industry, it often doesn’t matter how much value someone’s creative work generates. And unless you are familiar with intellectual property designations or can afford skilled lawyers to negotiate on your behalf, artists are usually expected to create while large corporations handle the rest.

I soon learned that Web3 had already considered this dynamic and developed a tool to ensure that NFT artists could continue to monetize their intellectual property rights. Using smart contracts, artists could program lifetime royalties into all non-fungible token sales, which would automatically deliver a percentage of their profits to their crypto wallets in perpetuity.

Smart contract NFT royalties have been embraced by independent artists as a much-needed protection. But while smart contract automated NFT royalties are the perfect Web3 antidote to years of creator exploitation, building the infrastructure to execute this vision has brought several challenges.

Perpetual royalties to creators are good in theory, although there are some logistical holes in enforcing them on the chain.

First, royalties are enforced for creators of smart contracts, a type of blockchain-based code that executes instructions from a predetermined agreement. In this way, smart contracts are not technically “smart” – the code is structured as a set of if/then conditions that are executed according to specific inputs and triggers. Smart contracts are not a form of artificial intelligence (AI), because they do not generate generative results; the outcome can only be an option that is predetermined.

Smart contracts are not technical contracts either. Governments are not obliged to recognize them as legally binding documents, while a contract between two people or companies signed by both parties with lawyers present will always be valid in the eyes of a judge.

Ethereum co-founder Vitalik Buterin has even said he regrets giving smart contracts such a strong (and potentially misleading) title. He once said that a more accurate description is “persistent script.”

Charlotte Kent, an arts writer and professor who wrote in April 2021 about the breakthrough potential of smart contracts, wrote almost a year later about our tendency to glorify them. “There is a practical audacity in the glorification of a transmitter/receiver model that eliminates all others, and an amusing folly in the assumption that smart contracts have actual legal standing,” Kent wrote.

Aside from the practical issues of smart contracts and royalties, there are the more financially driven issues that have emerged in recent months. NFT marketplaces made headlines during the last quarter of 2022 for proposing to make creator royalties optional on their platforms in an effort to attract more buyers. In November, a representative from Solana-based marketplace Magic Eden told CoinDesk that switching to a royalty-optional model was intended to address “collectors’ need for low-cost NFT trades.” Several other marketplaces adopted similar policies to remain competitive.

Meanwhile, OpenSea doubled down on its commitment to royalty payments by blocking NFTs minted on OpenSea from being resold on secondary marketplaces that prohibit royalties. Skeptics theorized that OpenSea’s tool was actually a covert attempt to keep all sales on its own platform, but OpenSea co-founder and CEO Devin Finzer responded by saying the move was an attempt to give artists more control over where their art is bought and sold.

“[Creator fees] is settled per marketplace,” Finzer said. “Many marketplaces emerged that decided not to honor creator fees.” In an effort to circumvent these marketplaces, OpenSea launched a new set of smart contracts with advanced programmability.

Meanwhile, artists became vocal on social media, rallying on behalf of creators’ rights to control their own royalty structures. “We all talk to each other,” said the prominent NFT artist and Deadfellaz co-founder Betty in a December 2021 interview with NFT-focused outlet NFT Now. “It came through the grapevine that [optional royalties] was going to happen, and we were all like — we’ve got to act.”

Many attribute the no or optional royalty trend to low NFT trading volumes during the bear market, suggesting an exploitative zero-sum mentality that prioritizes profits for centralized NFT marketplaces and speculative investors.

“In terms of OpenSeas back and forth, the way it’s affected artists like me is that even though they’ve scaled back their original intent to remove royalties from creators to some extent, many people are reluctant to spend on their platform,” said NFT nature photographer. Lori Grace Baileywho chose to stamp a 50-part edition on Sloikaa platform that Bailey says has “doubled down” on its commitment to protecting the royalties of creators.

There seems to be an expectation that artists (and loyal collectors) will simply migrate towards more creator-centric platforms. And compared to profile picture (PFP) community founders like Betty, one-of-a-kind artists may feel like they have less at stake, given that their art tends to circulate less in secondary marketplaces and therefore isn’t expected to generate significant income through royalties.

“Royalties were of course one of the many aspects of NFTs that appealed to me,” said painter and NFT artist MJ Ryle. “As a one-of-a-kind artist, it doesn’t affect me much. Primary sales can be challenging enough. Being in a position where secondary sales royalties are a concern seems like a luxury to me!”

Meanwhile, musicians may have a unique view on royalties, says Steph Guerrerohead of marketing and business development at Legato.

“No other industry was affected by piracy the way music was in the early 2000s,” Guerrero said, explaining that royalty payments suffered as streaming and torrenting services became popular. “Musicians are already fighting for royalties from all uses of music regardless of Web3, but some major voices in the space are saying that musicians should only be paid through actual NFT sales, and in some cases royalties only through secondary sales.”

She added that a royalty-optional or no-royalty model would place the burden on musicians to “constantly create to have revenue.”

Following backlash from the artist community, several NFT marketplaces reversed course on their royalty-free models.

Artists continue to have opinions about royalties and remain focused on promoting on behalf of creators. A favorite tool among artists is Manifold, a creator studio that allows for code-free embossing and customizable smart contract generation that protects royalties.

“I will continue to pursue all options, including minting parts for my own contract via sources such as @manifoldxyzor on platforms that wholeheartedly reinforce their commitment to protecting royalties to creators,” Bailey told CoinDesk.