In the world of NFTs, there is a debate raging about whether creators should receive ongoing royalties from future sales of their works. Frank, founder of the massively popular Solana NFT project DeGods, weighed in this weekend after setting the royalties for the project to 0% going forward.
Some say that artists should be compensated for their work ongoing, while others argue that the NFT industry should not be reliant on royalties to function. So, what's the verdict? Let's take a closer look.
Royalties are important, but…
There's no denying that royalties play an important role in supporting artists. They help ensure that creators are fairly compensated for their work and provide a stable income stream that allows them to continue fulfilling their artistic potential. For hundreds of years, artists have struggled to make a living, and many have not been able to fully explore their creativity due to the difficulty in managing a career in art.
Artists receiving royalties in perpetuity was one of, if not the biggest use-case for NFT’s. Whether the royalties should be 5, 10, or 2%, is still left to be determined over time - but I believe artists should be compensated for their work in a fair manner.
However, I don’t believe this is the argument at hand - it is more in relation to NFT projects that are attempting to create a long-lasting brand, and ultimately, a flourishing business. Relying on royalties for this model is not a sustainable option.
During the last 12+ months that we have seen NFT’s skyrocket in adoption, we have seen billions of dollars in transactions for these NFT’s, and the projects and marketplaces getting their cut along the way. Current market conditions have seen that secondary liquidity dry up significantly and projects must look much more creatively at how they will generate revenue to keep moving at pace.
NFTs shouldn't be reliant on royalties to function
The main counter that people bring to the table is that project founders of businesses should not need royalties to run their business, and that founders have become almost incentivized to create volatility in the price action (the more speculation and price action in your NFT, the more times you can make money off the transactions). This is unhealthy behaviour and bad for the space.
Assuming project founders want to build a brand and a business using NFTs, the state of the market can no longer sustain a business proposition. Minting out your project needs to deliver the initial funding for your business to take on the roadmap you outline. Any secondary revenues should be considered a very small cherry on top.
Without a great proposition and a strong narrative, it is EXTREMELY difficult to come into the Web3 space, and cut out an empire, while also providing value for your holders. We are all trying to figure this out in the long term and learning in the process.
Each NFT project is different and should be evaluated accordingly
Running a business built on NFTs is an extremely difficult task to take on. Not only are you running a start-up in a completely new industry, but you also have to manage your community’s expectations alongside the speculation that fuels the market.
This is beginning to align with the traditional business world. Every single business functions differently, and has its own ecosystem, competition, and value proposition. Like traditional business or Web2 companies - we’re now seeing a shift to the value of these companies based on the team’s ability to sell goods, events, and a lifestyle. This is about delivery and showcasing that you are executing on a plan.
At the end of the day, it's up to each individual NFT project to decide whether they want to offer royalties to creators.
I believe that Artists who are creating art with no additional ‘utility’ should be isolated from the conversation and continue to find support from fans. Businesses on the other hand - we need to know they can deliver, not just stimulate secondary sales…
There is no one-size-fits-all solution here; it all depends on the specific needs of the project in question. Ultimately, we need to remember that each NFT is its own entity with its own purpose and should be evaluated accordingly.
If you ask me on what I am confident on, however, is that as the space grows and develops, Marketplace royalties will trend further to 0% (like Robinhood’s approach) to gain as much of a competitive edge as possible - but more on this at another time!