Benefits of NFTs — VI
In the sixth post of our mini-series on NFTs, we will look at the zero royalties issue
In our previous five posts, we look at specific benefits an NFT would bring to a piece. This time we will be looking at a controversial topic; the royalties that are applied to NFTs.
Zero royalties? Good or bad?
While we are talking about the benefits of NFTs, we mentioned that artists are able to extract further value from their creations by attaching a royalty fee. As you might recall, they do that by adding an attribute to the smart contract (I.e. NFT) stating that they will get x% of any of the further sales. This feature has exponentially improved the value channeling to the creators of art.
In recent months a controversial trend has emerged in art circles: zero loyalties. Proponents claim that zero loyalties allow an even higher turnover for the art piece (as it will be cheaper) therefore such circulation will result in a higher recognition for the artist.
For users, having zero royalty means, they will be able to extract a higher value for the investment that they have on the NFT. Why pay say 5% of each sale to the creator instead of pocketing that amount? Especially in a bear market where everybody pretty much loses on their investments? Should the creator enforce such a fee on consumers?
Based on such thinking, some NFT exchanges decided to bring in the zero royalty approach. They did not list NFTs that have mandatory creator royalty to them and asked creators to remove that clause from their smart contracts (again reminder: NFT is a smart contract itself). Instead, they provide an ‘option’ to the consumer to attach a royalty fee to the NFT (sort of like a tip you give on top of your restaurant check).
Following that OpenSea actually made a controversial move and decided to enforce royalties for every piece that is listed on its platform. Reason? To protect creators.
I do not think there is right or wrong in the case of loyalties, but I tend to be on the creator’s side. As a marketplace, you should not enforce one way or the other and let the creator choose freely any option she wants.
A hybrid approach may be followed depending on the circumstances. An artist may decide to create certain pieces with zero loyalties to create an interest in their work, and later on introduce certain (high value?) pieces with loyalties. All in all, the jury is still out there in terms of the most optimal way to approach this issue.
To be continued
We will continue our series in our next post, where we will be looking at the new economic models that NFTs would bring to the market.
