The NFT market is currently facing a challenging period as tensions escalate between traders and creators of digital collectibles. Controversy surrounds royalty payments, leading to a fractious atmosphere in the industry. The dispute arises from the recent decision by prominent NFT exchanges, including Blur and OpenSea, to reduce the royalty rates paid to artists when the ownership of a token changes hands.

The motivation behind this move is to stimulate more buying and selling in a market that has seen trading volumes plummet by a staggering 95% since January 2022, according to a recent report from Bloomberg. Royalties, which reached a peak of $269 million in January, have since dwindled to just $4.3 million in July, with the rates paid dropping from as high as 5% per transaction to a mere 0.6%.

This significant decrease in artist income has the potential to discourage the creation of new work, further stalling a market that has already experienced a significant downturn. The NFT market enjoyed a prosperous period from August 2021 to May 2022, with cumulative monthly royalties amounting to $1.5 billion. This success was largely driven by the popularity of collections like Yuga Labs Inc.’s Bored Ape Yacht Club.

However, as the market began to decline due to the diminishing effects of pandemic-related stimulus measures, creator payouts suffered. The introduction of Blur in October caused a significant disruption in the NFT market. By reducing royalty rates, the platform incentivized trading and quickly captured over 70% of the daily volume on the Ethereum blockchain, as reported by a Dune Analytics dashboard.

This move put pressure on the previously dominant OpenSea platform to follow suit. Ally Zach, a research analyst at Messari, observed that “With the launch of Blur, NFTs became progressively more financialized.” Some experts argue for embedding royalty rates directly into the software governing NFTs, rather than allowing exchanges to adjust them as variable factors. Marketplaces like SuperRare and Art Blocks enforce these payouts.

Chris Akhavan, chief gaming officer at NFT marketplace Magic Eden, remarked that “rules must ultimately always be governed through code, not through hoping social norms will be enough” in reference to the need for codified royalty rates. Shiva Rajaraman, Chief Business Officer of OpenSea, acknowledged the necessity of finding new opportunities for creators to interact with their communities and make a living beyond traditional creator fees.

Rajaraman suggested linking NFTs to merchandise sales as a potential income stream for artists. However, artist Matt Kane, whose Right Place & Right Time NFT sold for over $100,000 in 2020, cautioned that a decline in creator engagement, resulting from reduced quality and diversity of NFTs, would outweigh any temporary surge in trading volumes resulting from lower transaction costs.

Kane revealed that many of his collectors act as patrons of the arts and manually send him additional royalties after transacting on non-enforcing platforms. However, not all collectors share this sentiment. Kane expressed his concern, stating, “Right now, we’re going backwards to zero-sum, where one person’s win is another’s loss.”


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