Royalties.
A concept most of us are familiar with – but before the 2021 NFT boom, something most artists had never experienced before. The increased perceived value of digital art during this time – both culturally and financially – and the promise of perpetual royalties after an initial sale, attracted large numbers of artists and creators to release their work as NFTs on-chain. Communities sprang up, brands were born, and we saw the emergence of a new path for creators to find success through their work.
Every day, social feeds seemed to be flooded with stories of artists making life-changing sales. Talented creators were suddenly able to bypass many of the complicated and archaic barriers to traditional art and chart their own course through the power of cryptocurrency, social media, and community. This period was short, fast and euphoric.
As is the case in most brand new and fast-growing industries, there were also problems.
Despite many creators thinking otherwise, royalties were not enforceable at the smart contract level. The point of enforcement always took place at the point of sale, i.e. via the marketplaces.
This worked well when marketplaces honored the enforcement of the creator set royalties along with their own marketplace fee – some even had this included in their terms of use. However, as the market slowed down and competition for market share became fierce, most major marketplaces introduced optional or zero-royalties (particularly retaining their own marketplace fee for the most part) in late 2022.
Fierce royalty debates ensued, usually from a yes or no, right or wrong perspective. The creators rallied and some of the marketplaces reversed their decision and stated that they would support continued royalties.
As it stands, many have moved away from this view and we are facing a potential reality where creator royalties are a thing of the past. A short-lived attempt at a truly fair market for all participants.
Greed and short-sightedness have cut off opportunity and innovation at the grassroots level, funneling the flow of decentralized opportunity to new talent.
I believe that royalties are an essential part of the ecosystem we have built together over the years. Royalties play a role in a delicate balance of value exchange that had not been seen in action on a large scale before. Marketplaces, merchants and makers were recognized and people were able to make real impact on their own.
Almost every Web3 company that started as an NFT project that you can call today was funded initially by Mint, and then by a steady stream of royalties. These royalties were then responsible for the astronomical valuations we saw in 2021 and 2022, and the influx of venture capital funding to said companies – just as marketplace fees resulted in massive growth and investment for the marketplaces themselves.
This industry is literally built on royalty.
There are arguments that royalties are not a reliable revenue stream and should not be used for brand building, but the fact is that for most people they are not just brand building and never have been. For many, the royalties consist of school fees, new equipment, mutual aid and more.
By doing away with royalties for others, now that a handful of people have “made it,” we are crippling momentum and taking huge steps backwards. We completely eliminate the ability for people to build outside systems that don’t serve everyone equally.
After observing and participating in the royalty debate for the past year, I am still steadfast in my belief that they should be protected.
No, royalties are not a reliable income stream in the depths of a bear market and should not be the sole income of any company at any given time.
No, royalties should not apply to all NFTs or projects.
No, the enforcement models we all adopted were less than ideal and were alarmingly centralized.
But we need to look at this issue of royalties objectively. None of this has yet been recorded or set in stone – we are building the tracks as we go along.
One point I want to make very clear is that creators should always be sovereign over the way their work is created, published, distributed and treated. Once these elements are determined, a collector is free to choose whether or not to purchase or work with that work. That’s choice. What is not a choice is that a person or entity imposes on the creator their chosen methods.
Creators have made this happen, with many opting to advertise on their own marketplaces, using their own smart contracts, and removing their work from larger platforms. Big brands have realized this, with companies like Yuga speaking out against removing royalty support from marketplaces.
We’ll see this continue to happen. I believe that if the marketplaces that have made their wealth continue on the path they have chosen over the backs of makers, they will accelerate their race to zero – but the industry will continue without them. NFT trading will shatter into purpose-built marketplaces that honor the intent of the creations themselves. Gaming, fashion, fine arts and PFPs will have their own platforms, and innovative ways to drive the ongoing concept of creator royalties will ensure the industry can continue to thrive and grow.
Betty is the CEO and co-founder of Deadfellaz, a unique project that launched in 2021 as an NFT collection of 10,000 zombies and has quickly evolved into a modern media company anchored in pop culture. Betty is a celebrated Web3 thought leader who drives conversation and consistently shines a spotlight on progressive ideas and creative solutions, with the ultimate goal of building bridges between internet futurists and the traditional media world. She is a passionate advocate for inclusivity and creator rights in Web3. With a track record of successful Deadfellaz partnerships with Wrangler, DraftKings, Rolling Stone and Chicago Bulls, Betty has become a resource for Web2 brands to authentically participate in Web3.