Could declining importance of NFT royalties inhibit NFT market growth

A new report from Galaxy Digital published on October 21 revealed that Ethereum[ETH] NFT creators managed to earn more than $1.8 billion in royalties so far. The report also revealed the concentration of royalties across major NFT marketplaces.

A deep dive into royalties

Major NFT marketplaces have earned hundreds of millions of dollars from royalties generated on secondary sales. Just 10 platforms accounted for 27% of all royalties earned, while 482 NFT collections accounted for 80% of total royalties earned.

The royalty percentage given to creators on OpenSea also witnessed a growth from 3% to 6% compared to last year. Furthermore, OpenSea accounted for more than 80% of the total Ethereum NFT marketplace volume. All these findings revealed a concentration of royalties from sales among the top NFT marketplaces. Thus betraying the crypto industry’s much talked about emphasis on decentralization.

The top 10 NFT marketplaces also collected almost half a billion dollars worth of royalties, equivalent to 27% of all ETH-based NFT royalties.

Source: Galaxy Digital

Nike, followed by Dolce & Gabbana, and Gucci led the brand bandwagon in terms of royalties earned from sales of NFT collections.

Source: Galaxy Digital

Yuga Labs earned $147 million worth of royalties from NFT sales, and the top 10 entities earned $489 million worth of royalties.

Are royalties here to last?

Compared to the age of the NFT space, NFT royalty is a relatively young concept. When CryptoPunks launched in 2017, they were considered the godfather of the 10,000 commodity generative PFPs. However, CryptoPunks was not built on a royalty-based model.

In addition, the only platform where Punks are sold, the official CryptoPunks exchange, still does not impose royalties on secondary transactions. Only this month, Solana announced elimination of royalties. The move seemed to provide a much-needed boost to the Solana NFT marketplace.

The idea of ​​royalty-free NFT marketplaces has gained increasing importance for quite some time. Amid such circumstances, the report emphasizes the critical importance of royalties to creators.

Proponents of royalties on NFT marketplaces argue that as their projects become popular, creators can make more money. This is because projects often begin with modest initial sales, but develop popularity in the months following their debut.

Opponents of royalties, on the other hand, argue that enforcement mechanisms cannot be implemented on the chain without significant trade-offs. Moreover, royalties can also undermine many of the benefits of permissionless blockchains in the first place.