One of the unique benefits of non-fungible tokens (NFTs) for creators is that they facilitate the distribution of royalties on resales.
In this article we review how the NFT royalty structure works, how customizable NFT royalties are, and explore the average NFT royalty rate.
Much like the royalties that musicians receive each time their music is aired on the radio or played on a music streaming service, if you’re an NFT creator, each time your NFT is resold on the secondary market, you get paid a fixed percentage of the sale price.
That, in a nutshell, is what NFT royalties are - and they are a great way for creators to monetize their art long-term and earn passive income.
The only and biggest difference between NFT royalties and “normal” royalties is that the NFT creator gets to stipulate what the royalty percentage will be, where other artists may agree to a royalty percentage based on a contract between them and whoever has licensing rights to their work.
The NFT royalty percentage is set by the owner during the minting process, and is usually based on guidelines from the secondary marketplace.
Suppose the royalty for a digital artwork is set at 10 percent. The original creator will be paid 10 percent of the total sale price every time their art is resold, indefinitely.
A great example of NFT royalties in action is when Beeple’s NFT piece “Crossroads” was resold on the secondary market for $6.6 million in early 2022 on Ethereum based marketplace Nifty Gateway. It sold in excess of 100 times the original sale price. Thanks to the stipulated royalties, Beeple netted 10% of the transaction.
This is the beauty of NFTs. Because they are smart-contract based, the creator can stipulate the terms and conditions of selling their NFT and the transaction history will always be recorded on the blockchain for them to be paid royalties whenever it changes hands.
An example closer to home, the Spacebudz project on Cardano’s marketplace CNFT.io has set a two percent royalties fee for all secondary sales.
So, let’s say if the floor price for a Spacebudz piece is 3000 ADA - and each ADA is worth 0.50 USD - then the selling price equals 1500 USD. The two percent royalty stipulated by the project’s owners works out to $30 USD.
That’s 2% on every resale of the 10,000 Spacebudz NFTs in perpetuity.
In most NFT marketplaces, the creator has the option to set what their NFT royalty percentage will be.
The payments of these royalties are automatically made at each and every subsequent sale of the artwork by the marketplace themselves.
When purchasing an NFT, royalties are not an additional fee, but rather a built-in cost outside of fees that the marketplace themselves may take for using their platform and others like transaction fees when using Cardano.
The royalties are automatically calculated during a sale and sent to the wallet address associated with the policy ID that is attached to a specific collection or one designated by the project’s team.
Here are some more quick-fire answers to some questions around NFT royalties:
NFT royalties are derived from secondary sales. This means, NFT royalties only start to be enforced by the blockchain once the artwork has been resold after the original sale has taken place.
To use a stock market example, it is similar to stocks trading in a secondary market after initially selling in an IPO (initial public offering).
This happens when the NFT is minted. Your NFTs' royalties can be set from the dashboard of your NFT collection using a marketplace with a minting service like JPG Store.
Most marketplaces or minting sites allow the creator to stipulate the royalty when they are in the process of minting the NFT. From then on, the blockchain will track and enforce that royalty automatically.
Want to know how to mint NFTs? Read this.
Want to learn where to mint Cardano NFTs? Read this.
On average, royalty percentages for NFTs ranging between 5% to 10% are considered standard. Knowing the overall costs of the NFT project will help you determine how much an NFT royalty fee should be.
However, probably the most important aspect to take into consideration when determining your NFT royalties rate is your audience and their level of willingness to absorb the cost.
You may find that many well-known projects selling NFTs over $10K use a lower royalty rate of 2.5% while newer projects often come in at around 5 to 10 percent. It’s important for new creators to be flexible when establishing a royalty rate as most projects are cheap when they are first sold.
The size of your collection will also likely play a part in determining what rate to set, as larger collections may be better suited to a lower royalty percentage, where special edition 1:1 pieces may command a higher percentage of NFT royalties.
NFT royalties mean creators get paid for their art forever!
Getting a fixed percentage from secondary-market trades on participating marketplaces can be a great way to increase revenue for your project.
On the Cardano blockchain, royalties are applied to a specific Policy ID or Wallet Address Pair. This is applied to all NFTs minted under that policy.
The artist community has long sought a solution that allows them to sell ownership of a digital asset and collect royalties based on a percentage set by the creators themselves.
Now, blockchain technology and NFT marketplaces on Cardano allow creators to set the amount they’d like to earn in passive income.
As a result, creators and artists can earn a more sustainable income, and are freed up to create more artwork without the worry of time-bound earnings.