- Since December 2022, no issue for NFTs has been as tumultuous as creator royalties. Creator royalties (aka resale royalties) are a small percentage of the resale of an NFT that goes back to the creator. In a forthcoming study we performed, the median rate for the Top 25 NFT collections was 5%. Creators contend that royalties correct the historical inequity against visual artists who weren’t able to receive a royalty, unlike other artists such as musicians and book authors. That inequity meant that visual artists wouldn’t benefit from resales of their artworks, even though the artists’ reputation is what drives the prices.
- In 2013, the U.S. Copyright Office recommended to Congress to consider recognizing a right to resale royalties for visual artists under copyright law or through voluntary measures, including contractual arrangements.
[T]he current U.S. copyright system leaves many visual artists at a practical disadvantage in relation to other kinds of authors….
Because most artworks are not produced in copies, the visual artist receives a financial interest in only one work – or at best a few copies of that work. Other creators face no comparable limitation, as their works are sold in perfect copies, and the copyright law generally enables them to be paid a share of every copy.
To alleviate the effects of this financial disparity, the Office believes that Congress should consider
U.S. Copyright Office in 2013, at p. 65
ways to rectify the problem and to further incentivize and support the development and creation of visual art.
- Creator royalties for NFTs are a form of contractual arrangement. They help to correct the financial disparity that disadvantages visual artists under U.S. copyright law identified by the Copyright Office’s report.
The tumultuous history of Zero Royalties policies + response to block marketplaces
- Let’s start off with a little history. Early on, marketplaces such as OpenSea respected creator royalties, which proved to be popular among artists. But, during the crypto winter of 2022 when prices of NFTs plummeted, upstart marketplaces started sacrificing creator royalties in favor of “Zero Royalties” policies to attract more traders who could make more money by circumventing royalties. We won’t rehash this history. But if you like to study it, we wrote about it here, here, and here. The website nft now also has a good recent summary here.
- The recent changes in policies are largely driven by the new market leader, Blur, which has wrested the lead for total sales volume from OpenSea, through Blur’s enticement of airdropping its tokens to traders on its site, what’s called “airdop farming.” The war between Blur and OpenSea even led to each adopting creator royalties policies requiring NFT creators to block the other platform, either Blur or OpenSea, as a condition of receiving full royalties.
Chart on Creator Royalties by Marketplace
- In the chart below, we’ve compiled what appear to be the current approaches of some of the leading marketplace. (Caveat: it’s possible that Blur has changed its policy again and we are not aware of the change. We’ve gleaned the information from Blur’s last relevant Tweet and blog post.) If you find any mistakes, please let us know.
The Bifurcated World of Blur + OpenSea
- As you can see from the Chart, Blur and OpenSea have established different policies depending on if (1) the NFT was created before 2023 (whose smart contract wasn’t changed) or (2) if the NFT was created starting in 2023 and whose smart contract was created using the on-chain enforcement tool or filter to block sales of the NFT on marketplaces that are not whitelisted (e.g., OpenSea’s operator filter).
- Prior NFTs. At least for now, the most valuable NFT collections fall into the first class of NFTs. The big boom in NFTs occurred before 2023 and the crypto winter. Their NFT creators typically receive only the minimum of 0.5% for resales of their NFTs on Blur or OpenSea.
- New NFTs. But, for the new NFTs that use the on-chain filter, they can qualify for 100% creator royalties on Blur and OpenSea, provided they meet the conditions of blocking required by the two marketplaces. OpenSea requires the blocking of other marketplaces that don’t follow OpenSea’s bifurcated approach; this no longer requires blocking Blur because Blur found a way to get around that. By contrast, Blur stated in late December 2022 that it would enforce full royalties for NFTs that used the filter and whitelisted Blur. Because OpenSea used to require the blocking of Blur to qualify for full royalties on OpenSea, Blur recommended on February 15, 2023 that traders block OpenSea to qualify for full royalties on Blur. (It’s unclear if this recommendation still applies after OpenSea abandoned its prior policy requiring the blocking of Blur.)
What this means for NFTs minted on other sites
- Some of you may be wondering why don’t creators just offer their NFTs on one of the platforms that respect creator royalties, such as Art Blocks, Foundation, or SuperRare.
- The problem is that won’t ensure they can’t be traded on other marketplaces. For example, NFTs from Art Blocks are tradable on OpenSea (but not Blur for technical reasons). That means a seller can circumvent the royalties of the Art Block’s policy by trading the NFTs on OpenSea.
- As Punk9059’s analysis shows, the ability to circumvent or avoid creator royalties on Art Blocks by selling on OpenSea has resulted in an erosion of creator royalties for NFTs minted on Art Blocks.