What are NFT royalties and how do they work?

NFT royalties make art and digital content a sustainable source of income for creators. Since payments are typically programmatic, there may be multiple creators that can take advantage of this model.

From a principled and economic point of view, NFT royalties offer a number of benefits to the ecosystem. Keeping track of subsequent purchases of artwork in Web2’s music, art, and graphic design creative industries is a challenge. In addition, contracts drawn up between creative professionals and large studios or companies are often one-sided and heavily directed against the creator of the work.

This imbalance in economic relations is what the Web3 model tries to correct. In Web3, every piece of work that is minted as an NFT can be tracked through subsequent purchases that are recorded on the blockchain. The creator can thus programmatically stay on top of the transaction chain and earn royalties at every point.

In addition, the creator can go to an NFT marketplace and list and sell their NFTs without the marketplace claiming royalties directly on the purchase. NFTs are instrumental because one can create an economy around makers, which has not necessarily been the strong point of Web2 business models. For many NFT collections, royalties have been a great mechanism to fund their operating costs.

NFT royalties can also curb the dangerous practice of wash trading. By creating multiple accounts or wallets, a market participant can buy an NFT or other digital asset that they want to artificially inflate the price of. Often their wallets are used to simply buy an NFT from each other to create the perception of demand and drive up the price of the NFT.

To unwary onlookers, this activity may seem like a high demand for the NFT. However, that is not the case. Enforcing royalties ensures that for every transaction between the washtraders & rsquo; wallets, there is a price to be paid. Therefore, the cost of keeping the price high adds up very quickly, making it difficult for the laundry seller to keep going.