NFT Royalties Top $1.8B: Galaxy Digital

To date, Ethereum-based NFT creators have collected more than $1.8 billion in royalties, according to data compiled by Galaxy Digital.

Royalty payments, the percentage that creators collect on secondary sales, are mostly concentrated to a select number of NFT projects, with 428 collections accounting for 80% of royalties earned.

The highest-grossing entity, according to Galaxy, is Yuga Labs, the blockchain company behind the Bored Ape Yacht Club and Otherside NFT collections, among others. The Yuga Labs collections have collectively earned more than $147.6 million in royalties.

“Until recently, NFT royalties have been an opaque aspect of NFT trading,” Galaxy researchers wrote in a report published Friday.

NFT creators receive royalties from the seller, not the buyer, similar to real estate transactions in traditional markets.

Royalties are not currently programmed into smart contracts, making it difficult to track payments. Smart contract transfer mechanisms cannot be relied upon to calculate royalty payments because these functions are also used when collectors transfer NFTs between their own wallets.

“The only way an NFT royalty could be programmed into a smart contract is if the program somehow knew exactly when an owner transfers an asset between their own wallet or sells an NFT to a buyer,” the researchers noted.

Because a decentralized royalty payment system is not yet functional, NFT marketplaces have taken on the role of facilitating royalty payments.

OpenSea started showing royalty amounts only during the checkout process October 2021. The popular NFT marketplace has also doubled its average royalty payout over the past year, increasing from an average of 3% to 6% paid to artists.

Other marketplaces, such as Sudoswap, pay no royalty fees to artists at all in an effort to appeal to sellers and attract traders.

“Buyers often need a 10% price increase to break even,” Sudoswap said Twitter in response to the decision to move to a zero fee structure. “Trading on sudoswap means you only pay a 0.5% fee versus the usual 7.5% fee (2.5% + 5% royalty) on other platforms, enabling better price discovery.”

DeGods, the most popular NFT project on Solana, became the latest to join the royalty-free club earlier this month when the team reduced its royalty payment from 9.99% to 0%.

Royalties have been touted as a reason to invest in digital art since the advent of NFTs, Galaxy researchers point out. Removing this model will significantly change one of the defining characteristics of the industry.

“Before NFT royalties came into play, artists traditionally made money only from primary sales of their works,” researchers wrote. “The restrictive financial paradigm ensures that artists, especially those whose work may be seen as too revolutionary for their time, are unable to increase their income stream as their work gains recognition.”

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