Could diminishing importance of NFT royalties hamper the NFT market growth

A new report by Galaxy Digital published on 21 October revealed that Ethereum[ETH] NFT creators managed to earn more than $1.8 billion worth of royalties so far. The report also revealed the concentration of royalties across big-time NFT marketplaces.

A deep dive into royalties

Major NFT marketplaces have made hundreds of millions of dollars from royalties generated on secondary sales. Only 10 platforms accounted for 27% of all royalties earned, while 482 NFT collections accounted for 80% of total royalties earned.

The royalty percentage given to creators on OpenSea also witnessed a growth from 3% to 6% over last year. Furthermore, OpenSea constituted more than 80% of the total Ethereum NFT marketplace volume. All these findings revealed a concentration of royalties from sales among the topmost NFT marketplaces. Thus, betraying the crypto industry’s much-touted emphasis on decentralization.

The top 10 NFT marketplaces also collected royalties worth nearly half a billion dollars, amounting to 27% of all ETH-based NFT royalties.

Nike, followed by Dolce & Gabbana, and Gucci led the brand bandwagon in terms of royalties earned off NFT collection sales.

Source: Galaxy Digital

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Yuga Labs earned $147 million worth of royalties off NFT sales, with the top 10 entities earning over $489 million worth of royalties.

Are royalties here to last?

As compared to the age of the NFT space, NFT royalties are a relatively young concept. When CryptoPunks was launched in 2017, they were widely regarded as the godfather of the 10,000 item generative PFPs. However, CryptoPunks wasn’t built on a royalty-based model.

Additionally, the sole platform where Punks are sold, the official CryptoPunks exchange, still does not impose royalties on secondary transactions. Only this month, Solana announced the elimination of royalties. The move seemed to provide a much-needed boost to the Solana NFT marketplace.

The idea of royalty-free NFT marketplaces has been gaining importance for quite some time. Amidst such circumstances, the report underlines the critical importance of royalties for creators.

The proponents of royalties on NFT marketplaces argue that as their projects gain popularity, creators are able to make more money. This is because projects frequently begin with modest initial sales but develop popularity in the months after their debut.

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Opponents of royalties, on the other hand, argue that enforcement mechanisms cannot be implemented on-chain without significant trade-offs. Furthermore, royalties may also undermine many of the benefits of permissionless blockchains in the first place.