Here’s where the best NFT marketplaces stand on Creator Royalties

There is little doubt that creator royalties provide a key appeal for NFT creators looking to make a living from their craft for the first time in their lives. Through this, creators can receive recurring revenue every time their works change hands on an NFT marketplace – giving even small creators the opportunity to benefit from this compensation method.

For decades, only commercially successful artists, musicians and actors (although they prefer the term “leftovers”) had the luxury of “royalties” in their vocabulary. But with the rise of NFTs, the average creator got the chance to experience this mode of compensation. In November 2022, however, OpenSea came close to shaking up the dynamic when they considered removing royalties entirely on existing collections, following a website update.

Luckily, OpenSea withdrawn its commitment to the change after a backlash from society. But that raised the question: where do other NFT marketplaces commonly used by the community stand on this issue?

Status of royalties on NFT marketplaces

There is good reason why OpenSea received one tidal wave of criticism from the NFT community to even consider removing creator royalties from existing collections. This was no surprise, because it is the most active NFT marketplace on the internet.

So where does OpenSea stand on giving creators access to royalties? According to a November 6th blog post, creator fees (as they are called on OpenSea) will remain for existing collections on the site until December 8th at the earliest. This means that OpenSea can still change its royalty policy for existing collections when it transitions to the chain of royalty enforcement on the platform.

Why? As detailed in the November blog post, OpenSea CEO Devin Finzer believes that enforcing off-chain royalties could hurt creators in the long run. “In marketplaces where these fees are optional, we’ve seen the payment rate for voluntary creator fees drop to less than 20 percent. And on other marketplaces, creator fees are simply not paid at all,” wrote Finzer in the blog post. To truly ensure that creator revenue remains protected by code, NFT marketplaces need to move the enforcement of royalty fees to on-chain, where it can be done by code, rather than whoever runs a given marketplace.

And OpenSea may not be alone in understanding the importance of changing the enforcement of royalty fees on the chain. Created in conjunction with other NFT marketplaces such as 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 partly predicted the problems OpenSea would face in the planned shift towards on-chain royalty enforcement, citing the difficulty of implementing such a feature on older pieces and collections whose royalty agreements were prepared 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 an on-chain royalty enforcement standard, given that marketplaces like Rarible have already built existing on-chain infrastructure to handle royalty payments for creators.

Finzer may also be right on the money in terms of how on-chain royalty enforcement will ensure the financial security of generations of NFT creators to come. For example, NFT marketplaces such as sudoswap and X2Y2 are still popular especially among traders because they are royalty free. Due to the growing popularity of this model, some legacy NFT marketplaces have felt pressured to adapt to this perceived shift in market demand.

Take Magic Eden, for example. Weeks before OpenSea released its bombshell announcement, Solana’s leading NFT market moved to make royalties optional. Now buyers at Magic Eden can choose to withhold paying creators this fee when purchasing an NFT. While on paper this would encourage collectors to continue using the site due to lower fees, it sets a harmful precedent for creators. As NFT marketplaces attempt to bring their zero-fee visions to life, should creators be concerned? Getting rid of gas taxes may be the priority at the moment, but bypassing creator royalties seems to be the logical next step for some traders. Fortunately, not all marketplaces have responded to the trend in this way.

How NFT Marketplaces Aim to Put Creators First

In the case of SuperRare, the market felt compelled to double down on its creator-first mindset following the renewed debate over creator royalties. “Part of the reason Web3 is interesting is that it enables new models that weren’t possible before,” SuperRare co-founder and CEO John Crain told nft now in an interview. “In this case, real-time visual art royalties were non-existent before.”

However, what makes SuperRare stand out among its peers is how it offers collectors a chance for royalty-based benefits in the same way creators do. In July 2021, SuperRare launched its collector royalty feature, much to the delight of the community. However, Crain’s clarified that this model may not be appropriate for all NFT marketplaces. “Since we are focused on art, it makes perfect sense. If a marketplace is selling other types of assets, then it might not be the right move for them,” he said.

Despite verbal emphasis on the importance of royalties to creators, NFT marketplaces have experimented with alternatives to this model in terms of benefiting creators. An example, after making royalties optional, Magic Eden rolled out MetaShield a month before their controversial announcement. Through the use of this tool, creators can ensure that their works do not end up on marketplaces that do not fully respect royalty fees, as well as monitor the debt incurred on their works from merchants who opt out of paying royalty fees.

Sounds good, right? Well, some people are understandably concerned about the existence of such a tool – and it has nothing to do with royalties. Although MetaShield is positioned as a way for creators to better monitor their works by coin, some argue potential threat to Web3’s central principle of decentralization.

Ironically, despite throwing a lot of 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 respect royalty. Also mentioned in the 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 indeed be a bitter pill the NFT community will have to swallow if it intends to continue growing. Whatever OpenSea decides to do with its legacy collections, the future of the NFT creator community is tied to chain markets. Relying on the code to ensure creators get paid seems more foolproof than relying on a single person working for an NFT marketplace.