NFT royalties not only offer passive income to creators but can also curb unethical practices like wash trading.
Creators have historically looked for different forms of income from their work. While there are laws pertaining to protecting intellectual property in the Web2 world, enforcing these laws and protecting creators’ interests has been hard to achieve.
This imbalance in economic relationships is what the Web3 model seeks to correct. In Web3, any piece of work that gets minted as an NFT can be tracked through subsequent purchases recorded on the blockchain. The creator can thus programmatically stay on top of the chain of transactions and earn royalties at every point.and list and sell their NFTs without the marketplace directly claiming royalty on the purchase.
NFT marketplaces can also set royalties for NFTs sold on their platform. This can have an adverse effect on the NFT ecosystem, directly impacting volumes. NFT trading volumes are one of the key performance indicators to assess the health of an NFT collection or the ecosystem on a chain. OpenSea, Magic Eden, Sudoswap, X2Y2 and Blur are competing for creators, users and, more critically, liquidity. This competition has created aggressive royalty wars, with reductions in royalty fees affecting the health of the ecosystem. This has, in turn, forced NFT projects to decrease the royalty fees, and even marquee digital collectibles, such as Bored Ape Yacht Club and Azuki, are no exception.
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