What Does the Plunge in Royalties Mean for NFTs?

The NFT world has had its share of problems recently. Those problems just got worse for creators of NFTs. Their royalties for secondary sales have just been slashed by the biggest NFT exchanges. There are cases where as much money is made in buying and selling an NFT multiple times than when it was first sold. Royalties were dreamt up initially as an incentive to attract talented people into this arena and improve the quality of the NFTs being produced. Will we see an exodus of artists working in the niche? What will happen to the quality of the work? Will this move by large NFT exchanges relieve their financial problems? What does the plunge in royalties mean for NFTs?

How Do NFT Royalties Work?

NFT royalties are a way for creators of non-fungible tokens to profit from secondary sales of their work. The percentage of these royalties has typically been set by the artist or creator before they first sell their work. As the NFT market has come under increasing financial pressure, market places have been making royalty payments an option or forgetting about them altogether. When a person sells their NFT to a market there may be an agreement to pass on royalties if the work is resold. But how does that work when the person sells the NFT via another market place? The fact of the matter is that folks like Picasso got paid for their paintings but did not get repaid every time their work was resold.

Rise of the Blur NFT Marketplace

Less than a year ago in October of 2022 the Blur platform was launched. It reduced royalties with intent of creating more incentive for traders to buy and sell NFTs. Since that time Blur has taken over 70% of all Ethereum-based NFT trading. OpenSea, the marketplace that Blur pushed out of first place has since followed suit by drastically lowering royalties. The sum total of royalties paid to NFT creators in July of 2023 came to $4.3 million which is a significant drop from the January 2022 peak of $269.3 million. Will these changes add to the NFT rout or will the sector and the fortunes of NFT creators turn around?

How Can NFT Creators Maintain Their Income Stream?

People who are familiar with the world of fine art may be unimpressed by the current dilemma facing NFT artists. Afterall, traditional artists get paid once for their work and not with every resale. On the other hand, actors in the worlds of TV and movies are familiar with residuals where getting paid for reruns of a TV show or movie is the normal practice. The reason that Blur got by with reducing royalties is that they control not only their marketplace but the bulk of NFT trading on Ethereum. What has been proposed by those who want to protect royalty rights of NFT producers is to include royalties in the coding of the NFT and not just as part of a contract with the marketplace. Maybe what we might see next is a strike like by the actors and screen writers that has brought Hollywood and TV show production to a standstill. In this case, a selective boycott of marketplaces that have reduced royalties and continued use of those that honor royalties could bring about some sort of agreement that both parties would be satisfied with.

Will the Reduction of NFT Royalties Save NFTs?

The NFT sector is being stressed. Trading volume is down and prices are down. Like with any marketplace, people are dropping their prices to keep selling or, in the cases of traders, to get out of assets that they think have run their course in value. Those familiar with the fine art market know that top prices rise and fall with the economy and other factors. A difference in the NFT world is that many are in it just for the trading just like if they were buying and selling Bitcoin. Traders expect profits and when the profits go away the traders follow whether artists are getting royalties or not.

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