Author: NFT platform Highlight

Compiled by: Felix, PANews

Key Points

• Royalties for Ethereum NFTs have dropped significantly in the past two years. The average royalty rate is now around 0.8%, a decrease of 84% from 5% two years ago.
• Based on the 2021 royalty rate, artists and creators saw a reduction of approximately $37 million in income in December 2023 alone.
• OpenSea is still enforcing royalties for a few projects, but will cease doing so on February 29th. At that time, overall royalties will drop to around 0.5%.
• Royalties for artwork are significantly higher than other types of projects, indicating that collectors are looking to establish a positive ecosystem.

Royalties used to be a focal point of debate in blockchain art, but the debate has subsided over the past two years. In January 2022, LooksRare was launched, followed by X2Y2 and Sudoswap in March and April, respectively, with these platforms either canceling the enforcement of royalties or eliminating royalties altogether. Blur launched a royalty-free market in October 2022 and introduced tokens in February 2023. OpenSea also quickly abandoned the enforcement of royalties. Each event has significantly and continuously reduced royalty rates. Data shows that the current rate is approximately 0.8%, a decrease of around 84% from about 5% a few years ago.

Overall royalty income has decreased significantly compared to previous market highs. In December 2023, approximately 3,339 ETH (equivalent to $8,315,512.38 at the current USD exchange rate) was paid to artists and creators. This is a 96% decrease from the historical high of 91,982 ETH (equivalent to $229,418,744.94 at the current USD exchange rate) in January 2022, exceeding $200 million.

These numbers are shocking, but they also reflect the overall market trend. The significant decrease is due to a notable decline in market trading volume, rather than a reduction in royalties. Even based on current market conditions, assuming a 5% royalty rate (which was the standard in 2021), it can be seen that creators and artists saw a reduction of approximately 15,100 ETH in income in December 2023 alone, equivalent to $37.6 million.

The situation will worsen in February this year, as OpenSea will stop collecting royalties for projects implementing the royalty enforcement tool (Operator Filter).

Despite the clear downward trend, there are some interesting changes depending on the type of project. These differences will be explored in detail below, but before delving into that, let's review the current background.

Current Royalty Market

While platforms like LooksRare, X2Y2, and Sudoswap have played important roles in market changes leading to reduced royalties, the majority of secondary market trading volume now occurs on OpenSea and Blur. OpenSea canceled royalty enforcement in February 2023, but later decided to enforce royalties for projects that enabled Operator Filter before August 31, 2023, or were created on non-Ethereum blockchains before that date. This means that only a small number of projects currently retain OpenSea's royalty enforcement. However, OpenSea will stop collecting royalties for all projects on February 29, 2024. In terms of user experience, OpenSea defaults to allowing creators to set royalties in the UI.

For NFT series with royalties on all markets, Blur enforces a minimum royalty of 0.5%. Additionally, Blur allows royalties to be set at 0%.

In-depth Analysis by Project Type

PFPs

As mentioned earlier, royalties are generally declining, but this change is most noticeable in popular PFP projects such as Azuki, Bored Ape Yacht Club, Cryptoadz, and Milady. While these projects previously had royalties of 2.5%-5%, the average royalties for these projects are now even lower than Blur's 0.5%. For several weeks, Azuki even fell within the 0.0x% range.

Art

Art projects are performing better than PFPs. This may be due to common public norms and collector support for individual artists. It can be seen that while some mainstream Art projects (including several Art Blocks projects) previously had higher royalties than PFPs, they are now hovering in the range of 1.5%-2.5%, and even higher for several weeks.

Platform Comparison

The royalty rate for all projects on OpenSea still hovers around 2%. On Blur, this rate is approximately 0.4%. However, considering that OpenSea will stop collecting royalties for all projects in February 2024, this situation is expected to change significantly.

The following chart shows royalty rates for different platforms (excluding projects with royalties over 5%). After closing the royalty enforcement tool, the average royalty rate for OpenSea has decreased by more than half, to 0.75%. This helps to understand the average royalty situation for OpenSea after canceling all enforcement in February.

Conclusion

There are strong indications that collectors, especially art collectors, want to participate in a positive ecosystem and are willing to spend more than what creators request to support artists. NFT platform Highlight believes that it is reasonable to increase royalties paid to artists by 2-3 times, raising it to over 2%.

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