What are NFT royalties and how do they work?
Music artists, actors, and other creators are well-accustomed to receiving royalties for their work. Well, some of them are. As creative content moved online, it became increasingly difficult for smaller creators to receive royalties for the use of their work. NFT royalties provide a trustless solution to this problem.
This article explores NFT royalties, how they work, and how creators can use them on Enshrine.
What are NFT royalties?
NFT royalties are payments sent to the creator or creators of an NFT for the use of their non-fungible tokens (NFTs). These royalties are typically set during the minting process and are written into the smart contract that backs the NFT. Any time the NFT is sold, funds are sent directly to the creator’s address.
While the royalty percentage varies, it’s most common to see royalties between 5-15%. The payment of royalties to the creator depends on the marketplace, especially if the token is sold in a marketplace different from the one it was created on.
How do NFT royalties work?
One of the most significant benefits of NFT royalties is the fact that it is trustless.
What do we mean by that? Think about royalties in the music world. Typically, a music label will receive a request for a song to be used in a commercial, movie, or another song. The music label then collects the payment for the use of the song and distributes the royalty to the artist. This entire process requires an intermediary to collect and distribute payments.
As you’d expect, this overhead can be costly, and this royalty distribution model is antiquated — dating back over 100 years.
Blockchain is predicated on transactions primarily being trustless. Explained in simpler terms, NFTs execute their intelligent contract code without needing an intermediary. The code is written to the blockchain for everyone to see, and functions like royalty distributions usually happen immediately after a trigger — in this case, a sale.
This gives NFT royalties a couple of advantages over the middleman method. First, royalty distributions are much cheaper because a person doesn’t need to facilitate the transaction. And second, royalty agreements are immutable once they are written to the blockchain. Regardless of who buys or sells the NFT, the royalty distribution must happen if it is written into the smart contract.
Should creators use NFT royalties?
We think that NFT royalties offer a unique way to develop a recurring revenue stream from their work. Not only does the creator make money when their work initially sells, but they also receive a fraction of every sale in perpetuity.
You might think that 5-10% royalties won’t amount to much of a recurring income stream. While that may be true if the creator doesn’t make many NFTs or if the NFTs aren’t reselling for much. However, we’ve seen content creators like GaryVee earn millions in just a few months from NFT royalties alone.
Not many creators will earn as much as GaryVee. However, NFT royalties can quickly add up and provide meaningful passive income for content creators.
Using NFT royalties on Enshrine
We recognize the importance of royalties for the financial success of content creators. From day one, Enshrine will support creator royalties on all listing types.
One benefit of creating NFTs on Enshrine is that NFT royalties are paid out in fiat currency. This allows creators to immediately spend their funds on supplies, staff, or even cryptocurrency! We’re not aware of any other platform that offers this feature.
Creator royalties on Enshrine NFTs are written into the smart contract code, meaning that the royalties will continue to function in the event that the NFT is sold on another platform.