Galaxy Digital released a report showing Ethereum NFTs creators earned a sum of $1.8 billion in royalties via marketplaces such as OpenSea in secondary sales.
Sal Qadir and Gabe Parker led the team of researchers at Galaxy Digital. They discovered the royalty rates at OpenSea for NFT creators have doubled on average over the last year. They now receive 6% of sales up from 3%. Crypto Lists explores more!
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The Centralization of NFT Royalties: Exploring Galaxy Digital’s Report
The report also highlights that the NFT economy may perhaps be more centralized than how most people perceive it. Royalty distributions went mostly to ten entities. These entities received close to half a billion dollars in royalties. This represented 27% of Ethereum NFT royalties earnings. The report relying on Flipside Crypto data highlights that at least 482 NFT collections accumulatively earned 80% of all market royalties.
NFTs are associated with their blockchain tokens to represent ownership. The tokens are minted or sold on a third-party website developed by NFT creators. Alternatively, they are sold through a committed launchpad accessible in particular marketplaces. Once the mint is complete, the NFTs are resold in marketplaces such as OpenSea, LokksRare, Magic Eden, and others. OpenSea is the best-performing marketplace by trading volume.
Yuga Labs, the creator of Bored Ape Yacht Club, earns the most royalties with over $147 million in royalties alone. The $4 billion startup’s royalties earnings are not a big surprise as its Otherside metaverse land mint yielded $561 million in total sales within 24 hours earlier this year. The startup is also delving into blockchain games.
OpenSea NFT MarketPlace Facilitates NFT Royalties
There has been a surge in NFT marketplaces recently. However, OpenSea still holds the most significant share of NFT resales. Data from Data Analytics and the Galaxy report supports this as OpenSea represents over 80% of Ethereum NFT marketplace volume.
NFT creators that mint through OpenSea decide on the percentage of royalties from secondary sales. These creators have over $76.7 million in royalties earnings to date from these sales. There are other reputable NFT creators. These include Chiru Labs’ Azuki, Proof Moonbirds, The Sandbox team, Doodles Team, and Gary Vaynerchuk’s VeeFriends.
The Galaxy Digital report also referenced an independent set of data that emphasised legacy brands. The report reveals that Nike is the leading earner with $91.6 million. There are NFT offerings in the listing that are from RTFKT but not branded by Nike. Nike acquired RTFKT as a digital studio in 2021. Other brands included in the listing include Gucci, Adidas, and Dolce & Gabbana.
Role of Royalties in the NFT Ecosystem
Based on the recent past, royalties are critical in the NFT ecosystem. Creators have consistent earnings to support the development of various objectives in their projects’ roadmap. Some creators look to create a video game, have token-gated parties, and hire community moderators.
Qadir and Parker describe royalties as a core value proposition of NFT. However, they note that they are not enforceable on-chain without forgoing decentralization and self-custody principles. These principles are essential for crypto proposals. Its enforcement possibly triggers a blockchain trilemma. Therefore, centralized NFT marketplaces enforce the royalties. We’re sure that there will be further news to come as NFTs become a bigger and bigger part of the consumer market.
NFT Marketplaces’ Debate on Abandoning Royalties
In the past month, NFT royalties have caused much debate. On October 9th, pseudonymous Solana NFT creator Frank did away with royalties for DeGods and y00ts profile picture NFT collections. He termed it as an experiment after Solana marketplaces ignored creator royalties or allowed traders to determine if they would pay them. Avoiding creator royalty fees saves NFT sellers about 5% to 10% of the secondary sale.
Following these developments, Magic Eden announced that creator royalties are optional. The top Solana marketplace decided this after losing a significant market share to its competitors. It announced this move on Twitter, highlighting that it acknowledges the significant implications for the ecosystem. It also delivered a call for a new set of standards to protect royalties.
The reaction to Magic Eden’s recent development was marred by criticism. Several Twitter users responded by pointing out that it is the worst decision showcasing a desperate grasp for market share. Creators are still hopeful as the creator of Solana’s current NFT standard, Metaplax, indicated recently that it is advancing a new standard that can enforce royalties on-chain.
As the NFT royalties debate continues, regardless of the outcome, it is clear that terminating royalties forfeits a significant source of income for creators. You can learn more about the Solana coin here.