“Zero Royalties” policies on NFT marketplaces pose existential threat to Web3 and creators

  • It’s time not to mince words and call it like it is. “Zero royalties” policies being adopted by some NFT marketplaces pose an existential threat to Web3 and creators.
  • OpenSea’s recent decision to recommit to collecting and distributing royalties to creators probably saved Web3 from total collapse. But it’s important to recognize the existential threat posed by “Zero royalties” policies isn’t over. It’s just begun.
  • Below we walk through the race to the bottom created by “Zero royalties” policies. In that race to the bottom, the clear trend in the NFT marketplace is to reduce royalty payments to zero. That means creators get $0 of any appreciation in value or profits from their own artwork. In no creative industry, from book publishing to music, would it be tenable to adopt a business practice that denies royalties to creators. Indeed, for traditional visual artists, 80 countries around the world recognize the artist’s resale right under copyright law. That’s based in part on the recognition of a simple fact: If creators don’t get paid, they will have to find other jobs.

Point 1: “Zero royalties” policies have produced a destructive race to the bottom with more money being diverted away from creators to avoid paying them royalties. The following graph shows that the market share of OpenSea (which respects creator royalties) has decreased from above 80 percent to around 50 percent this year. The dramatic shift has favored other marketplaces that don’t collect or respect creator royalties or make payment purely optional like tipping, only there’s no established custom of tipping artists.

Point 2: The increase in market share on “Zero royalties” marketplaces has resulted in the significant loss of royalty payments to creators. The following graph shows that the Top 20 NFT collections (by volume) has lost 20 percent of their creator royalties in just one month. Another study by PROOF estimated that creators are losing 40 to 70 ETH in royalties each day due to their circumvention through NFT sales on “Zero Royalties” marketplaces.

Point 3: “Zero royalties” marketplaces are paying creators virtually nothing–or close to $0. Not surprisingly, “Zero royalties” policies will produce zero royalties for creators. Yet the marketplaces benefit financially from the creative artworks related to the NFTs being sold on the platforms.

Point 4: OpenSea is the last hope for stopping the race to the bottom, but OpenSea is shouldering a disproportionate burden, collecting 91 percent of all creator royalties in the entire market while having less than 50 percent of the market of NFT sales.

Point 5: Zero royalties policy could lead to the ultimate demise of Web3. The trend lines from the data are ominous. If it continues, the race to the bottom will lead to the demise of Web3. Many creators won’t be able to sustain themselves–and will have to seek other jobs. That may already be happening during the crypto winter, but “Zero royalties” policies will only accelerate this harm to creators. Plus, all of the utility, roadmaps, and benefits that NFT buyers want, including commercial IP licenses, will end. Artists can’t fund utility, roadmaps, perks, and commercial IP licenses for NFT owners without the financial support that royalties offer.