March 5, 2023

What Are NFT Royalties, and How Can You Earn Them?

Reading Time: 5 minutes

Your NFTs are just digital pictures. They can earn money for years to come.

Non-fungible tokens (NFTs) have revolutionized how artists and content creators sell and earn from their works, especially in music, art, and other creative content. One of the ways they earn money is by earning NFT royalties, which help them get continuous compensation for their work.

But what are NFT royalties? How do NFT royalties work? And what marketplaces offer the opportunity to make NFT royalties?

What Is an NFT Royalty?

An NFT royalty is a percentage of the sale price of an NFT that is pre-defined and paid to the creator or original owner each time their work is resold. Essentially, this feature allows creators to continue profiting from their NFTs, even after the initial sale.

NFT royalties are intended to offer a sustainable source of income to creators of digital art, music, and other digital assets. In addition, they provide a means for creators to capitalize on the appreciating value of their works as they are bought and resold on the secondary market, generating a fresh revenue stream for artists and other creators in the digital era.

How Do NFT Royalties Work?

When an NFT is minted, the creator has the option to set a royalty percentage that they will receive whenever their NFT is sold in the future. The percentage typically ranges from 2.5% to 10%, but it can be customized to the creator’s liking. When the NFT is resold on an NFT marketplace, the royalty percentage is automatically deducted from the sale price and paid out to the original creator or owner. This feature allows creators to earn a passive income stream from their work even after it has been sold.

To begin earning NFT royalties, you must first mint your NFT. This involves registering your digital asset on a blockchain network to create a unique and secure record of ownership. During the minting process, you can specify the amount or percentage you would like to receive from secondary sales of your work using smart contracts. As a result, when secondary sales occur, the smart contract will automatically allocate the predetermined percentage to you as the original owner.

The royalty system associated with NFTs is intended to provide an opportunity for creators to capitalize on the rising value of their work over time, even after the original NFT sale. This creates a long-term income stream for artists, musicians, and other creators, which can motivate them to continue producing high-quality work.

Suppose you create an NFT, and someone purchases it for 50 ETH. While this initial sale only earns you 50 ETH, if you had included an NFT royalty of 10%, you would continue to earn a percentage of each future sale. If the buyer subsequently resells the NFT for 500 ETH, the smart contract would trigger and reserve 10% of the sale price for you, the original creator. If the new buyer decides to sell, you would receive an additional 10% royalty as the original owner, creating a potential long-term revenue stream for you.

The royalty percentage for an NFT remains fixed, while the sale price of the NFT may vary. This can cause variations in the amount of royalty the creator earns from each sale, depending on market demand, scarcity, and other factors. Thus, the creator can earn different royalty amounts from different sales, even though the royalty percentage remains the same.

5 Pros and Cons of NFT Royalty

1. Pro: NFT royalties provide creators with a way to earn ongoing revenue from their works even after they have sold them to someone else. In that way, the reward for their work won’t be a one-time benefit.
2. Pro: NFT royalties help to ensure that creators are fairly compensated for their works as they increase in value. Therefore, it enables them to earn more as the value of their work increases.
3. Pro: Royalties are automatically deducted from the sale price of an NFT, which makes it easier for creators to receive payments for their works. This is because the mode of agreement is executed on a smart contract without any intermediary; once the NFT is sold, it gets triggered automatically.
4. Con: Buyers may be less willing to pay high prices for NFTs if they know they will also have to pay royalties every time the NFT is resold. Some NFT marketplaces have made royalty payments optional; an example of such a platform is ‘Blur,’ while platforms such as LooksRare have eliminated NFT royalty on their platform.
5. Con: Price volatility can also impact the frequency of NFT sales, which in turn affects the royalty earnings of the creator. NFTs markets are highly unstable. Therefore, potential buyers may hesitate to invest in the asset, which can lead to a decrease in sales volume and, ultimately, lower royalty earnings.

4 Platforms That Offer NFT Royalties

Although NFT royalties are still a relatively new tech, there are several NFT platforms where you can earn them.

1. OpenSea

OpenSea was founded in 2017 and is the largest marketplace for non-fungible tokens. In February 2023, OpenSea announced a change in its fee structure, reducing its transaction fee from 2.5% to 0% for a limited time.

OpenSea also stated that for NFT projects lacking on-chain enforcement measures, collectors would only be obligated to pay a nominal 0.5% royalty fee on old and new purchases. However, collectors can pay more if they think the NFT is worth more. This change will likely have a meaningful impact on the NFT market, positioning OpenSea as an increasingly accessible and cost-effective platform for collectors and creators alike.

On the other hand, users that implement the on-chain enforcement tools are entitled to full royalty payments of up to 10%.

2. Rarible

Rarible was established in 2020 and offers a user-friendly platform for creators to showcase their artwork. The process of listing an artwork on Rarible is straightforward, requiring you to create an account and connect a wallet. After that, you can begin uploading works and setting prices. Rarible charges a 1% fee on every transaction conducted on the platform, which applies to both the buyer and the seller. Furthermore, the platform allows creators to set a royalty rate of up to 50%.

3. SuperRare

Launched in 2018, SuperRare is a prominent NFT marketplace that has distinguished itself from other NFT marketplaces by emphasizing the uniqueness of its digital artworks. Prospective creators seeking to publish NFTs on the platform must apply for approval from SuperRare Labs. In addition, on SuperRare, when a secondary sale occurs, the original owner gets 10% as royalties, while the collector receives 90% of the sale. A fee of 3% is charged for every sale, which the buyer pays.

4. Foundation

Foundation, one of the largest NFT marketplaces, was launched in 2022. If you want to list your digital art or collectibles on Foundation, you need to wait for an invite from an established community member who has sold at least 1 NFT. Foundation charges a 5% fee on every secondary sale, while a 10% royalty is given to the original creator, and the seller gets the remaining 85%.

NFT Royalties Are the Future of Creative Expression

In conclusion, despite being a relatively new concept, NFT royalties have significantly changed the art world. The advent of NFTs has provided creators with a reliable source of income, enabling them to continue their craft. Furthermore, it has opened up a new market for digital assets that were previously undervalued or ignored.

As the use of NFTs grows, we can anticipate further transformations in art creation, sale, and valuation. Therefore, NFTs have not only revolutionized the art industry but also have the potential to shape the future of creative expression.

Reference: https://www.makeuseof.com/what-are-nft-royalties-how-can-you-earn-them/

Ref: makeuseof

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