Unless you have been living under a rock, you have probably heard of the term royalties. But have you heard about NFT royalties? This new technology is making waves in the NFT space and rightfully so. It’s providing artists with new ways of monetization out of the hands of greedy corporations.
But is there another side to the story? In this article we will be exploring the pros and cons of NFT royalties. So without further ado, let’s get right in.
What are NFT Royalties?
Essentially, NFT royalties pay a percentage of each transaction to the original creators. Artists set a rate and this is taken from each subsequent sale. Rates are usually upwards of 5% and the whole process is automated.
Advantages
NFT royalties certainly present a unique opportunity for artists. Traditionally, rewards for artists stopped at the point of sale. Now they are given consistent residuals and as their popularity grows so will their returns.
Not to mention this can also benefit the community. If an NFT collection promises utility then this additional income will only support it. This was made popular by Bored Ape Yacht Club. The team has been using the money to create a metaverse,merch and much more. Ultimately, this is a win-win situation.
Disadvantages
Bad incentive structure – this current system has a bad incentive structure, it doesn’t allign with loyal NFT holders. The more trading volume the collection has the higher the royalties. Creators, therefore get less in fees if their community holds. This incentivises quick turn around and pump and dumps.
Royalties are not enforceable – At the end of the day, users can still transfer them peer to peer and pay using a different medium. As the sale is not done through market place that enforces them it is avoided.
Not only that but wrapped tokens can also be issued. Essentially the NFT is locked and a token is issued in return. This token can be traded on the open market without the royalty mechanism being triggered. Once you have traded the tokens, you can redeem them for the original NFT.
Summary
Overall, NFT royalties are a great way for artists and creators to have their work yield subsequent profit. They now have more freedom than ever. But ultimately, there is no way to enforce royalties so therefore it should be done in good faith, similar to a tip. If you want to support an artist go ahead.
In an industry notorious for screwing over artists I am all for it. Perhaps the days of record labels and corporations leaching off deprived artists are coming to an end.
Want to learn how to make passive income on your NFT? Check out my previous article – How to Earn Passive Income From NFTs
