NFT Royalties — Does true ownership lie in asset creators or asset holders?
Royalties are fees paid by an NFT collector upon the sale of an NFT. These fees go to the creators of the particular NFT. It usually ranges from 5–10% of the initial sale price and with the values of NFTs becoming really high, 5% of the initial sale could mount up to a really substantial amount. While this has been a source of worry to collectors, it was generally assumed that this was the way original creators could be rewarded since one of the goals of web 3 is to preserve the rights of creators.
However, this tune changed upon the launch of marketplaces like Yaww, that adopted a 0% royalty policy. Just like the typical yet sadistic theory in web 3, “everyone just wants to pump his bags”, Yaww received quite the patronage and attention for a while as collectors were happy to receive the full price of their NFT sales. More marketplaces like Sudoswap followed suit by completely removing royalties and X2Y2 allowing collectors to have an option to pay royalties or not. There continued to be more sales on these platforms although not completely outperforming other marketplaces that enforced royalties, but it still led to a significant decrease in the passive income to be earned by creators. This generated the hot debate, where some collectors are of the belief that “my NFTs, my choice’’, and they should have the choice to pay royalties or not since they have the ownership while creators disagree with this claiming they should have a cut as the original owners and creators of the NFTs.
A lot of solutions have been proferred by supporters of enforcing royalties, the most recent and daunting of them is the Metashield, created by Magic Eden and Coral Cube, Solana NFT marketplaces. The concept of metashield involves giving power to creators to track all listed NFTs bypassing creators’ royalties and enable such creators take actions like updating the metadata, flagging or blurring such listed NFT. The “shield” remains on the NFT till the royalty debt is paid which can be done by anyone and not necessarily the holder. This generated a lot of reactions in the NFT community, while some lauded the innovation, some believed that this simply punishes buyers and it is a step tailored towards centralization and incomplete ownership since another party can tamper with “your” NFT.
Magic Eden and Coral Cube are not the only bodies trying to enforce these punitive measures, Founder of Solana, Anatoly, has also stated that creators should have authorities to freeze assets not in compliance with royalty system. Since the metadata of NFTs are not in the hands of holders and in the hands of creators, it makes these measures easy to exert. Consequentially, the NFT community is in a state of confusion on where ownership truly lies, apparently another party could interact with their NFTs against their wishes after paying thousands of dollars to acquire it.
A lot of discussions and arguments have been made sequel to this innovation. One of them being the push for immutable NFTs which cannot be tampered or altered by anyone but this also means goodbye to art upgrades which is a source of excitement to the NFT community. Another point is the provision of incentives for people who honor royalties to encourage more of it rather than punishing those who do not honor it. It was also submitted that buyers or NFT collectors should be adequately educated on the contractual terms so as to make better informed decisions when buying or collecting NFTs that may have uncomfortable royalties for them.
NFT royalties have continued to be a trending issue in web 3. Regardless, the end to the controversy does not seem close as some collectors have continue to base their argument on having a choice to pay royalties or not due to the decentralization and permissionlessness nature of web 3, creators also continue to state that web 3 facilitates the recognition and preservation of creators’ right.
