The future of digital artistry depends on the NFT royalty debate

Despite roughly $100-200 million in NFTs being traded on blockchain networks every week, many creators still struggle to generate significant revenue from their work. Reason? Royalty – or rather lack of such. Royalties allow creators to be compensated for their work beyond the primary sales, making them an important source of income and a means of funding future creative endeavors.

However, royalty awards for creators are not technically enforceable. As a result, creators are at the mercy of the NFT platforms that host their work, as these platforms have the power to decide how royalties are distributed. This is a crucial question. Without a fair system for distributing royalties, the future of the digital artist industry is at risk.

Navigating Royalty Enforcement

The royalty debate reached a fever pitch in November 2022 when OpenSea, one of the leading NFT marketplaces, announced plans to introduce a tool that would enforce creator royalties (artist’s royalties) on the platform. The problem? Although the NFT giant gave new collections an option for origination fees, they said they were considering defaulting existing collections to zero royalties.

While some in the NFT community were pleased that OpenSea was taking a stand to support artists creating new collections, the company faced a lot of backlash from existing creators and ultimately decided to continue enforcing creator fees for existing collections.

While the community considered this a victory, the problem goes far beyond OpenSea. Because there is no technical way to enforce royalty awards, each marketplace can decide whether to offer or honor them. This lack of standardization has led to a situation where some marketplaces – such as LooksRare, Magic Eden, and X2Y2 – do not offer NFT royalties to creators, instead leaving it up to NFT buyers to honor an artist’s royalty policy for purchases. This can be problematic, as it places the burden on buyers to understand and follow each artist’s individual royalty policy, which can be confusing and difficult to navigate.

Furthermore, most marketplaces, including OpenSea, do not support royalties on individual pieces. If an NFT with its own royalty policy is sold on a platform like Rarible and then listed on OpenSea, the original artist may not see any revenue from the secondary sale. This undermines the ability of artists to make money from their work and can lead to a lack of fairness and transparency in the NFT market.

Empowering current and future creators

It is important to empower creators through NFT fees. These royalties democratize the cap rate, preventing one central platform from having all control over how the royalties are shared, ultimately giving creators more power to determine the terms. In addition, creators can negotiate directly with fans and create long-term revenue streams through their supporters acting as distributors.

There are a few ways the NFT space can work towards a fair and enforceable system for distributing NFT royalties. Establishing universal standards and protocols for NFT royalties will give creators more control over their work and provide a level playing field for all marketplaces to operate within. This will also make it easier for buyers to understand and follow individual artists’ royalty policies, which will help ensure that creators are fairly compensated for their work.

Moving towards universal standards and protocols, the Ethereum Improvement Proposal (EIP) 2981 allows developers and users to easily link royalty information to an NFT asset stored on the blockchain. This opens up a common data store and calculation layer that all participants have access to, making it easier to track and enforce royalties. In addition, SuperRare is currently developing an NFT royalty model, although it is unclear if it uses EIP-2981. However, this project is a promising step towards creating a more robust solution for NFT royalties.

But this is not all that is needed. By giving creators the support and resources they need, we can help ensure that the digital artist industry continues to flourish and grow. From Udemy to the aptly named NFT art course, thousands of artists are already taking advantage of these resources and learning how to better support themselves and make a living through their craft.

Ultimately, the future of digital artistry depends on the NFT royalty debate. By addressing this issue and finding ways to empower creators, we can ensure the industry remains vibrant, dynamic and fair for all.

Brent Annells is a serial entrepreneur, tech enthusiast and CMO of Smart Token Labs, connecting brands to the NFT ecosystem. Brent has led partnerships and branding for major technology companies including Facebook and Uber.