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As the NFT market has slowed down, royalties have dried up for brands that create collectibles to be sold and traded on open NFT marketplaces. That’s partly because resale values, and the value of cryptocurrencies, have declined. However, it’s also because secondary royalties — the incremental percentage of each subsequent sale that is supposed to go to the original project’s creators, as dictated in an NFT’s smart contract — are no longer enforced on major trading platforms such as Opensea and Blur.
In August, Opensea — at the time the leading dominant NFT resale destination — announced that it would no longer be enforcing NFT royalties, and instead would offer people an option to pay a royalty contribution. This means that brands who previously partnered with Opensea for their drops, such as Hugo Boss or Gucci, will no longer receive royalties starting in the spring, and any new collections that have launched since August are already not receiving automatic royalties.
This also means that a key premise of NFTs — making sure artists got paid for their work indefinitely — is broken. Without royalties, a brand or creator who drops an NFT may only see revenues from that initial launch, and not through any further sales. This is why the art world was one of the first to latch on to the new technology, and why many subsequent NFT collections focused on high resale value as a key sign of success; in the early days, this led to many NFTs collectors choosing their purchases based on the promise of selling for profit.
“In the beginning, it was wonderful. [NFT royalties were] such a unique value proposition of NFTs, especially with luxury brands that do so many collaborations with different artists,” says Matt Maher, founder of M7 Innovations, which advises luxury brands on Web3 strategies. In other words, if a luxury brand partnered with an artist on an NFT collection, the smart contract could outline incremental royalties for both the brand and the participating artists.
One company is changing how it approaches royalties in a bid to revive the market. Yuga Labs — owner of leading Web3 projects including Bored Ape Yacht Club, Cryptopunks and 10KTF — is making royalties automatic and reliable via a new partnership with NFT platform Magic Eden, which it recently announced at the Ape Fest conference in Hong Kong (on 3 to 5 November). The Magic Eden Ethereum marketplace, which is slated to open by the end of the year, will be the first major Ethereum blockchain marketplace that is legally obligated to perpetually honour creator royalties. This means that the small percentage of money that is supposed to go to Yuga Labs any time one of its NFTs is sold on the secondary market will be split between Yuga Labs and its designated collaborators. The same will be true for any other NFT that is sold and traded on the marketplace.