Centralization of NFT Royalties: Insights from Galaxy Digital
The report emphasizes the surprising centralization within the NFT ecosystem. A majority of royalties were paid out to just ten entities, who collectively received nearly half a billion dollars in royalties. This accounted for 27% of Ethereum’s NFT royalty earnings. The research, based on data from Flipside Crypto, highlights that at least 482 NFT collections earned 80% of all market royalties.
NFTs represent ownership through blockchain tokens and are minted and sold through third-party platforms developed by NFT creators or dedicated launchpads in specific marketplaces. After minting, NFTs are typically resold on platforms like OpenSea, LokksRare, and Magic Eden, with OpenSea leading the market in trading volume.
Yuga Labs, the creator of the famous Yacht Club dosadnih majmuna, is the largest royalty earner, with over $147 million in royalties. This is not surprising, as its Otherside metaverse land mint raised $561 million in sales within just 24 hours earlier this year.
OpenSea’s Role in Facilitating NFT Royalties
While there has been an increase in NFT marketplaces, OpenSea remains dominant in terms of Ethereum NFT sales, representing over 80% of the marketplace volume. Creators who mint NFTs on OpenSea set their royalty percentages for secondary sales, with these creators having earned over $76.7 million in royalties to date.
Other well-known NFT creators include Chiru Labs (Azuki), Proof (Moonbirds), The Sandbox team, Doodles Team, and Gary Vaynerchuk’s VeeFriends. Additionally, the Galaxy Digital report referenced Nike, which earned $91.6 million from NFTs in collaboration with RTFKT, a digital studio acquired by Nike in 2021. Other notable brands in the space include Gucci, Adidas, and Dolce & Gabbana.
The Importance of Royalties in the NFT Ecosystem
Royalties are a crucial part of the NFT ecosystem, as they provide creators with consistent earnings to help fund the development of their projects. Many creators use royalties to finance video games, token-gated events, and community moderation.
Qadir and Parker describe royalties as a core value of NFTs but note that they can’t be enforced on-chain without sacrificing decentralization and self-custody. This creates a potential blockchain trilemma, which is why centralized NFT marketplaces take on the responsibility of enforcing royalties. As NFTs grow in the consumer market, we can expect more developments in this space.
The Ongoing Debate Over NFT Royalties
The topic of NFT royalties has sparked controversy. In October, Solana NFT creator Frank eliminated royalties for his DeGods and y00ts collections, citing it as an experiment after Solana marketplaces ignored creator royalties or allowed traders to decide whether to pay them. This move saved NFT sellers around 5% to 10% on secondary sales.
Following this, Magic Eden, the leading Solana marketplace, made royalties optional, after losing market share to competitors. The announcement, made on Twitter, acknowledged the significant implications for the ecosystem and called for new standards to protect royalties.
The decision faced backlash, with many calling it a desperate move to regain market share. However, creators remain hopeful, as Metaplax, the creator of Solana’s NFT standard, is developing a new standard that could enforce royalties on-chain.
Regardless of the outcome, removing royalties means forgoing a significant income stream for creators. You can learn more about Solana coin here.
