NFT Royalties Take a Halt - What's Next for Creators?

NFT Royalties were more like the frosting on the cake for creators, a way to get additional benefits even after selling their NFTs. However, the narrative for these extra toppings has changed over the years.

There has been some debate on whether NFT royalty should still be given to creators, and OpenSea was one major marketplace that stood firmly with the former rather than the latter.

Many marketplaces have moved on to a "no-royalty fee" model, leaving OpenSea the only contender for this resort. However, this changed on the 17th of February when the marketplace announced removing the mandatory royalty fee payment.

Seeing that royalty fees are one of the unbeatable value propositions of NFTs, the question of what next rings constantly in the hearts of creators and artists.

A Little Recap About Nft Royalties

In case you're new to this term, NFT royalties are subsequent payouts that creators get each time their NFT sees a secondary sale.

The percentage, often set by the creators, mostly ranges from 5-10%. The fees are programmed so that creators automatically get the set percentage once a secondary sale is made.

The royalty fee model works for nearly all digital assets, including gaming accessories, art, music, physical accessories, and anything sold as a non-fungible token. They offer artists and creators an opportunity to maximize their position as the initial owner of the item.

This model has been a significant value proposition in the NFT space and a reward system that attracted digital artists and creators to the bandwagon.

While the mandatory fee has taken effect in past times, the narrative gradually shifted over the years. Some major marketplaces like X2Y2, SudoSwap, and LooksRare parted with this months back, leaving creators with no royalty or minimized royalty payment options.

Last week, OpenSea took a similar step in this direction.

One of the first NFT marketplaces to put a cap on the mandatory royalty fee payment was X2Y2, and this happened in February 2022. Following X2Y2, SudoSwap was another major platform that experimented with Royalty fee payment by collectors.

Rather than making it non-mandatory, the platform restricted the amount to a maximum of 0.5%.

While many people argued about this system exploiting artists, others pointed out that market conditions are more likely to favor marketplaces that keep these fees low.

Therefore, making them more attractive to buyers and collectors. LooksRare also made its move in October 2022, bowing out of mandating royalty fee payments to creators.

Opensea Halts Mandatory Royalty Fee Payments

Word on the street is that OpenSea decided to cut mandatory royalty fees to remain competitive. While OpenSea remains the world's largest marketplace for NFTs, we've seen activities on other platforms signifying it could lose this position soon.

There are speculations about this being the primary reason the network made this big change, and one could most certainly agree since it holds some ground.

For context, the Blur NFT marketplace is a rising competitor to OpenSea and has risen to be a top platform to trade NFTs. Two major factors making it more of a competitor are the absence of a marketplace and mandatory royalty fees.

In addition, Blur has seen a lot of activities lately, particularly from its recent $BLUR token airdrops and the profit potential it presents to investors. The new NFT platform quickly became the most used, capturing about 30% of the market share in February.

When you look at this from OpenSea's perspective, it's easy to see the reasons for the recent announcements to cut royalty fees. Most collectors prefer not to pay these fees, and marketplaces need collectors to boost market shares. So, it became one of two options.

To protect market shares or drop royalty for creators. With OpenSea's recent decision to eradicate royalty fees, creators are the only parties at an obvious disadvantage.

The Way Forward With Zero Royalties

It has been established countless times that royalty fees cannot be mandated on buyers. Therefore, the only party with the power to enforce this are marketplaces. With marketplaces' unwillingness to carry on with this, what happens to creators?

Forsaking royalty fees is a huge game changer for the NFT ecosystem mainly because it guarantees that artists and creators are rewarded for their work. The absence of this throws the entire NFT essence off.

Additionally, the decision by OpenSea goes beyond a mere change in company policies; it eats deep because OpenSea is the biggest NFT marketplace on the block(chain). It will significantly impact the ecosystem as a whole.

With NFT royalties out of the equation, creators have little to gain from the system, and fundamental questions about the essence of NFTs might begin to make rounds in the marketplace.

Community reactions so far have been negative; many see this as a trend that could negatively impact the NFT community. On the other hand, creators might need to explore different forms of incentives and money generated from the royalty model.

Possible monetization alternatives include exploring exclusive content for their NFTs, partnerships and promotions, membership programs, subscriptions, etc.

With OpenSea's decisions to cut royalties, there will likely be a paradigm shift in the ecosystem. Creators might have to kiss the mandatory royalty fee payments goodbye and find a way to work with the new model.

The ecosystem is ever-evolving. Collectors, creators, and marketplaces might go around in circles a few times before arriving at their north.