What is the Impact of Optional Royalties on Creator Economy?

With the emergence of blockchain technology, NFT artists and creators dabbling in the world of web 3 have been able to make secure, direct, p2p transactions surrounding their art collections without having to share a cut with third parties to make this happen.

This has benefited creators in particular by helping them pocket a greater share of sales. However, the sanctioning of royalties on blockchain has become a major concern for them. In this blog post, we will explore this impact and why it has become such a lightning rod for conversation.

What are royalties?

Royalties are fees that buyers pay to the original NFT creator for trading copyrighted materials. These fees are usually set between 5–10% and decided by the creator themselves.

What are optional royalties?

Blockchain platforms have made changes to this long-standing rule by morphing the concept of creator royalties into an optional tipping feature instead.

This change would benefit those looking to buy NFTs, but it also makes it much more difficult for creators to monetize their work on the blockchain.

OpenSea makes waves with optional royalties announcement

OpenSea.io, the largest web3 marketplace announced in February 2023 its plans to make projects eligible for optional royalty payments if they don’t use its new on-chain enforcement tools.

The kicker here is that it would mean almost all projects created before 2023 will be affected, this means NFT buyers would have the choice to decide whether or not they want to pay for the royalties a creator had previously imposed.

What this means

Optional royalties create a barrier for creators who want to make a living from their work because it limits their ability to monetize their creations, this ultimately hurts the creator economy as a whole.

It means creators are now faced with the loss of a major revenue stream that was once a principle benefit of being a part of the blockchain, a largely decentralized ecosystem.

The imposition of royalties would create a situation where third-parties can still control the distribution and monetization of creator art, which defeats the purpose of blockchain technology entirely.

This would inevitably discourage creators from embracing the technology in the first place, leading to a decline in innovation and creativity within the artist space.

Battle of the marketplaces: introducing the Blur marketplace

So all you need to do is use OpenSea’s new on-chain tool to enforce royalties when creating a new collection right? Not quite, because a new marketplace, Blur.io, has made a big play for Opensea’s crown.

Blur is a decentralized platform that aims to solve some of the challenges associated with selling NFTs, including the issue of royalties. In recent weeks, it has hit headlines for seeing trading volumes soar upwards of USD $894 million — successfully edging out OpenSea (USD $486 million).

The key advantage of Blur is that a creator who opts to host their collection on both platforms will receive a minimum royalty of 0.5% compared with OpenSea’s hard stance of 0%.

This is tactic is further bolstered by the airdrop of BLUR tokens worth USD $300 million to its most loyal users during “Season 1” — with more to come in Season 2. This has made Blur one of the main contenders to OpenSea’s throne in the battle to become the defacto NFT marketplace.

OpenSea vs. Blur: a war waged with creator royalties at stake

Blur’s commitment to offer a zero-fee marketplace for creators listing their collection exclusively on the platform has kickstarted a royalty rivalry with OpenSea which has been losing its market share to the former.

As it stands, creators can only receive complete royalties from listing on either OpenSea or Blur, but not when a collection is hosted on both platforms at the same time.

What is the way forward?

Blockchain technology initially enabled creators to bypass third parties and provide more control over their projects, but the introduction of optional royalty payments now introduces a barrier that limits their ability to monetize work effectively.

This undermines the philosophy of decentralization and makes it difficult for creators to earn freely within the web 3 ecosystem. To foster innovation and creativity in the creator economy, it is essential to remove this barrier and explore alternative revenue models that do not limit the ability of creators to monetize their work.

By doing so, perhaps we can create a profitable system that benefits both creators and buyers. Only time will tell.