September 27, 2023

What You Need to Know About NFT Creator Royalties

min read

When OpenSea announced that they were no longer going to enforce creator royalties, the backlash was swift, loud, and maybe most surprisingly, eye-opening.

What I mean by this is that creator royalties have been immensely important for NFT creators. For many of these creators, royalties are how they made ends meet and were the source of financial support that allowed them to continue their passion for producing digital art.

Even with the heavy significance creator royalties play in an artist's work, it wasn't until OpenSea's announcement that it became a lightning rod topic in the NFT space.

But while it's a topic that affects essentially every NFT creator, a considerable portion of the Web3 community needs to be made aware of what creator royalties are, what marketplaces enforce them, and what they mean for their creative ambitions.

So if you're one of those who still need to figure out exactly what’s the deal with creator royalties and why they matter, then don't you worry. We're here to cover that and way more.

So, what exactly are creator royalties?

A basic definition of NFT royalties is every time there is a secondary sale of a creator's NFT, a percentage of that sale is paid out to that creator. Usually, these percentages are between 5-10% of the price, and this figure is often applied to secondary sales of the NFT.

Royalties are trackable on the blockchain since the royalties' specifications are coded into the creator's smart contract. This is a critical detail to remember because, depending on the marketplace, if royalties terms are not built into the smart contract, there’s the chance that you the creator won’t receive royalties from sales of your work.

Shiti Manghani of  Find Satoshi Lab told TechCrunch in an interview that royalties are critical for rewarding creators for their work and building long-term value. She told TechCrunch, "The creators and artists will work with platforms that value their work, stop their exploitation and consequently empower them to create their best work."

It's easy to see why royalties are immensely popular for creators and why they are so crucial for their livelihood.

What's happening with creator royalties?

Since the drastic 2022 downturn in the NFT market, more marketplaces are starting to reconsider their stance on enforcing creator royalties. While many marketplaces used to enforce creator royalties on secondary sales, ensuring artists a cut of the profits, others have either opted to make creator royalties optional to the buyer or remove royalties altogether.

Why would marketplaces decide to make such a drastic policy switch? It all comes down to money.

With a steep dip in NFT trade volume and a steady decline in the value of most cryptocurrencies, marketplaces are tightening the screws to salvage their own profits.

Aside from the falling price of crypto, there’s data that shows collectors are choosing to sell their NFTs on marketplaces that don’t enforce creator royalties in order to increase their profits.

Of course, teams at marketplaces enforcing royalties have also seen this trend and are realizing they are losing marketshare.

But while 2022 saw a slew of marketplaces opt out of enforcing creator royalties, it was the announcement by OpenSea – one of the largest and most widely used NFT marketplaces – that caused the loudest backlash and created some of the most heated discussions on the topic.

They announced in early November that they were changing their royalty model to what they called a "thoughtful, principled approach" to royalties.

In short, the model proposed that new collections launched on OpenSea could opt to enforce creator royalties by using their on-chain enforcing tool while also blocking trading on other marketplaces that don't enforce fees.

While OpenSea saw this as a way to balance the scales in favor of creators, it was immediately apparent that many saw this move differently.

Given the fierce opposition to what OpenSea was planning, they almost immediately reversed coursed and continued to honor on-chain royalties for new and old collections.

But even with OpenSea's reversal in the face of the collective voice of NFT creators, other marketplaces are holding firm on their stance to ax royalties from NFT sales.

By declining to implement mandatory royalties, marketplaces are attempting to grab a portion of NFT buyers from rivals who continue to enforce royalties.

This power struggle amounts to a complex web of markets taking stances on policies immensely impactful to creators. Despite the importance of the topic, it's hard to determine which market is standing by creator royalties and which aren't.

Where do leading NFT marketplaces stand?

To simplify things, we analyzed and broke down the royalty policies of a few of the leading marketplaces.

1. OpenSea

With their royalty gaff in hindsight, OpenSea returned to its previous policy. On November 9th, they reversed course on only enforcing royalties on new collections and reverted to the prior standard of royalties applying to all collections.

OpenSea pointed to data suggesting that creators are losing out due to competitors seizing market share over their non-fee policy.

Only time will tell if OpenSea sticks to its promise to creators or if they fold in the face of market pressure.

2. Rarible

The short answer with Rarible is, yes, Rarible does honor creator royalty fees. The longer answer is that Rarible has a robust system for ensuring artists get a percentage of secondary sales.

According to their help docs, the Rarible Multichain Protocol supports two types of royalties: RoyaltiesV1, RoyaltiesV2, and EIP-2981.

Plenty of fine print further explains what goes into each of these royalties, but the overall message Rarible wants to communicate to creators is that they will get their royalties.

3. LooksRare

On October 27th, LooksRare announced they would no longer support creator royalties. Instead, the Web3 NFT marketplace decided it will share 25% of the LooksRare Protocol fee with creators or collection owners.

LooksRare also allows buyers to contribute additional royalties to the creators at checkout. In a statement released via tweet, the LooksRare team said, "It's not our place to say who deserves royalties or how much, but if you want artists and creators to be able to go all out, do cool shit and give back, they probably need your support."

Even with this newly implemented policy, LooksRare remains a top NFT marketplace.

4. X2Y2

Touted as the number two marketplace on Ethereum, X2Y2 faced a similar outcome as OpenSea. While initially deciding on a new policy, a large portion of the community rallied against their switch to not enforcing creator royalties.

As they state in the thread, they said it was an "easy decision" to accept royalties on new collections and continue enforcing them on old ones.

The upheaval that X2Y2 experienced was another clear sign that artists and the creative community have a powerful voice in shaping the policies of NFT marketplaces.

A list of NFT marketplaces enforcing royalties

To make things easy for you, here’s a snapshot of the markets that still are enforcing royalties:

A list of NFT Marketplace not enforcing royalties

If you’re a creator looking to avoid marketplaces that are don’t enforce royalties, here’s a quick list:

Keep an eye on the markets

For now, the collective force of artists has cowed many of the marketplaces into complying with creator royalties. But as market woes plague the crypto world, more marketplaces looking to carve out more profits will move to non-royalty models of trading.

With a constantly changing ecosystem and fluctuating market, it's critical you always #DYOR and keep an eye on where you, the creator, should be selling your collections.

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