NFTs, or Non-Fungible Tokens, have taken center stage in digital currencies in the past couple of years. These unique tokens have mostly benefited artists and creators, and they cannot get enough of it. One of the primary factors fueling this NFT popularity among creators and artists is NFT royalty.
But there has been a pervasive debate in the market, with some supporting the zero royalty policy while others are taking a stand against it. In all these times, OpenSea had chosen to remain quiet without clarifying their perspective on the ordeal. But this has changed OpenSea, finally clarifying its position!
But What Are NFT Royalties?
NFT royalties are similar to any other royalty in general. These royalties give creators and artists a certain percentage of the selling price every time someone sells their NFT creation in a marketplace. These royalty payments are perpetual, and people leverage the smart contract mechanism to execute these payments. Most marketplaces allow creators to choose their royalty percentages, ranging from 5% to 10%.
Unlike conventional royalties, NFT royalties are automated payouts that creators receive on every secondary sale. Besides that, NFT royalties are coded into a blockchain’s smart contract to simplify the process. This means on every secondary sale, the smart contract will hop into action to ensure that every term of the NFT is fulfilled effectively. So whenever there is a mention of NFT royalty, a certain percentage of the sale amount is awarded to the artist or creator of the NFT.
What Is The Debate With NFT Royalties All About?
Ever since the inception of the first NFT, creators have been entitled to a certain percentage of royalty for their NFT creation. But this will probably change with some people speaking against it and some for it. So break down both these perspectives.
Argument For NFT Royalty
Creating digital art only sometimes translates to a successful business endeavor. However, many other elements sprung into action to take the digital towards success. Things like the creators, reputation, and engagement with the NFT community play a key role here.
Furthermore, in most cases, a successful NFT creation will increase in value with time as the collection garners more popularity. This way, royalties complement the artist’s efforts when their collection becomes more popular.
With that logic in mind, royalties tend to create a source of passive income for artists, further encouraging them to create more digital art. Otherwise, the traders or intermediaries will gain more rewards while capitalizing on someone else’s creativity.
Argument Against NFT Royalties
If you are a trader or collector, you are more likely to be well aboard with this argument. This is understandable, given nobody would enjoy paying a 10% commission on an artwork worth $3000,000. However, this, in many ways, seems unfair for collectors who play an imperative role in boosting the valuation of a given digital artwork.
This argument gained more traction when a prominent NFT platform, Sudoswap, eliminated royalty fees for creators. Then there is X2Y2, another NFT platform that has made royalties optional at creators’ discretion. But more is needed to answer the question about creators missing out on rewards when their NFT creations begin to gain traction.
OpenSea’s Stand On NFT Royalties?
OpenSea recently decided to weigh in on this debate and clarify its stand on the entire ordeal. The platform clarified that they had taken a much more thoughtful and principled approach toward putting this matter to rest. The platform aimed to launch a new technology enabling on-chain royalty enforcement for new collections.
OpenSea further added that they are still in the discussion process for deciding the ideal approach for dealing with the existing NFT initiatives. They will likely indulge more stakeholders in the discussion to get better clarity and reach a conclusion by the 8th of December 2022.
This will give the market enough time to decide whether or not to make royalty payments more discretionary for NFT sellers and follow the lead of other marketplaces.
But What About The Competition?
OpenSea made it very clear that it is still in support of continuing tradeoffs. But the catch here is that one would have to give up on the permissionless and censorship-resistant nature of NFTs to enforce creator’s fees on chains.
What’s more? The new enforcement mechanism brought forward by OpenSea would mean the Ethereum NFT developers will get the code to include the same into their newly released NFT smart contracts. The code will function like a blacklist and prevent the coded NFTs from being exchanged at any marketplace without meeting the minimal royalty requirements.
Where Does This Leave Other Marketplaces?
There is no denying that OpenSea is one of the largest NFT marketplaces. But that does not mean it is the only one, as it has recently lost many shares to others. Data further affirms that OpenSea has been losing its volume in recent times.
Experts say OpenSea has been losing the volume of its Ethereum network over the [past three months. They further add OpenSea lost its daily volume in recent weeks from more than $20 million every day to half or less than that.
But these things were likely to happen due to the bearish performance of the crypto market. Even Solana has been losing its volume, which shows that OpenSea is not alone in this.
Nonetheless, OpenSea remains the dominant player in this sphere as it still holds an impressive market share of around 56%, down from the 70% mark it had at the beginning of the year.
Striking The Right Balance
Contrary to popular OpenSea, taking a stand on this ordeal did little to settle the more extensive debate. But it sparked another debate about marketplaces’ potential to establish their control or dominance over the NFT sphere.
Both creators and collectors must sit and discuss their issues until reaching a middle ground with everyone’s concerns in mind. This will help them address all concerns since we need both creators and collectors to drive better results and facilitate growth in this market.