A Creator’s 101 Guide to NFT Royalty

In the world of digital art and collectibles, Non-Fungible Tokens (NFTs) are all the rage. Each NFT is a unique digital asset, and just like how no two snowflakes are alike, each NFT is one-of-a-kind. Although the use of NFTs is still in its infancy, there is a lot of potential in the technology. The most important one is to reward creators for their work in terms of NFT royalties.

But what are NFT royalties? How can creators leverage royalties in their NFT collection? Is royalties on-chain, or is it off-chain? How to best optimize your NFT mint, and which are the best marketplaces to list your NFTs? Here is a 101 guide for all creators out there!

Table of Contents

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• Which Chains Are Performing in NFT Sales and Why?
• Which Marketplaces Are Performing in Those Chains?
• Fees and Royalties in NFTs
• Is Royalty Paid On-Chain or Off-Chain?
• Final Conclusion: How should a Creator proceed?

Which Chains Are Performing in NFT Sales and Why?

Rank 1: Ethereum

• Retains more than 60% of the total market share. The high Value of the Ethereum Blue chips is a big contributor to this, but still, The Ethereum transaction count is 2x that of its next counterpart, Solana.
• 15% increase in buyers
• 22% increase in transactions

Source: Nansen; Cryptoslam

Ethereum is a top performer because of many reasons

1. Proven history of decentralization: With the current FUD over Solana, people are moving to a more trusted chain and hence back to Ethereum NFTs. Although Solana and ImmutableX looked healthy to compete with Ethereum in NFTs, Ethereum could hold its place because of its proven history of decentralization
2. Most liquidity: Good collections stay alive in Ethereum, because of the high liquidity, that stimulates long-term organic growth
3. Involvement of high-quality creators: For example Yuga Labs, Takashi Murakami (CloneX), RTFKT, etc
4. High-quality User Experience and availability of advanced tools: Cases like Opensea and X2Y2.
5. Ethereum Name Service (ENS) NFTs are traded on the Ethereum network only: That brought a lot of volume to the Network in the bull market. Although ENS NFTs are 20th in terms of volume, their presence gives Ethereum an advantage over other chains.

Rank 2: Solana

Solana is second, with $64 million in NFT sales in the last 30 days.

Because of the FTX situation, Solana NFTs are currently performing poorly. Transaction count has also decreased by more than 67%, and the number of buyers has decreased by 42%. However, surprisingly, Trading Volume has increased by 12%.

1. With Solana losing a big number of its buyers, it is still essential to understand that the core NFT community is still buying. There is community trust in the chain and hence the transaction volume has increased. The core community is accumulating NFTs, particularly Blue Chips like DeGods, Y00Ts, etc.
2. The accumulation is also driven by the current low price of SOL tokens, making the collections cheaper in NFT value.

Rank 3: Immutable X

Immutable X is third with $21 million in NFT sales in the last 30 days.

• Even though IMX has seen a 25% drop in transactions, it has managed to increase its buyer community by 43%.
• Trading Volume (USD) at 21M is very close to the 27M of Solana. But the market cap of ImmutableX is much lower, and thus presents a good opportunity for investors.

ImmutableX is definitely a chain to watch out for! But can it flip Solana and stay on top of Polygon? We will have to wait and see!

Conclusion

A creator needs Liquidity, Volume, and exposure.

With a 63% market share, Ethereum is a clear winner. We can also include Solana in the shortlist. This is because the major Exchanges have been able to integrate Ethereum and Solana chains.

IMX marketplaces (native and Gamestop) are still standalone, we propose waiting for another 6 months to see more integration happening.

Which Marketplaces Are Performing in Those Chains?

1. Ethereum

In overall NFT marketplaces, Ethereum marketplaces occupy the top 10 places.

Opensea has a clear advantage with twice the volume of its competitor X2Y2. It also has more sales, buyers, and sellers, even with a high fee rate.

2. Solana

Magic Eden processes the most NFT trading volume in Solana at $59 million. Looking at the number of traders and UI, Magic Eden has to go a long way to beat Opensea. It is the best Marketplace in Solana, but the UI does not appeal to the majority of Art collectors.

Fees and Royalties in NFTs

Since we have a clear list of the best NFT marketplaces, let’s take a look at the platform fees and creator revenue. Here is a table comparing the top marketplaces with respect to platform fees and royalties.

Source: Dune Analytics

Clearly, Opensea comes on Top with the least platform fees and the most revenue received by creators. But what about Foundation? Let’s estimate Foundation Royalty Revenue for creators.

It has a 30-Day Volume of 1.36K ETH. At 1 ETH=1100, the volume comes at $1.4M. Foundation charges 5% on secondary sales, and by adjusting the platform fee, the actual volume becomes $1.19M.

The best case scenario: All collections set a 10% creator fee. Then, creator’s earnings will be $119K. But the best-case scenario is not practical. However, that makes Foundation a better place for creators, but the high fee structure limits the volume and buyers.

Is Royalty Paid On-Chain or Off-Chain?

Onchain NFTs

• Opensea, Rarible, Foundation, Magic Eden, and X2Y2 support on-chain royalties. That implies, whenever a collection is bought, the creator gets royalties automatically.
• The royalty fee is included in the total transaction amount too.
• The mechanism behind on-chain royalties:
  • EIP 2981 ensures a specific percentage of the total value to be present in the transaction.
  • If the transaction does not contain the percentage, in addition to the floor value, the transaction fails.
  • When a transaction is completed, the creator address (present in royalty info) receives the royalty automatically.
• Beware: Wrapping the NFT is a way around this mechanism as wrapping the NFT changes the information on most NFT marketplace. But a wrapped NFT is unlikely to attract buyers because of questions surrounding the authenticity of the NFT at a glance. The marketplace or users might report or flag the NFT as a scam too.

Offchain NFTs

• Offchain royalties are royalties paid by the marketplace, and the royalty data is kept with the marketplace rather than with the collection, on-chain.
• When an NFT buyer takes out the NFT from the marketplace (delisting), the royalty information is lost, and the creator will not be able to receive royalty fees afterward.
• If the creator lists on another marketplace, there is no guarantee of royalty data sharing between the exchanges, and might result in non-receipt of royalties.

Final Conclusion: How should a Creator proceed?

Blockchain and Marketplace selection

• For creators to maximize earnings:
  • Mint Chain: Ethereum
  • Listing Exchange: Opensea
• For Artists
  • Mint Chain: Ethereum
  • Listing Exchange: Foundation
• For Degen NFTs
  • Mint Chain: Solana
  • Listing Exchange: Magic Eden
• For NFT Game (Upcoming)
  • Mint Chain: Immutable X
  • Listing Exchange: IMX Native marketplace

Minting Process

• Mint Your NFT in Ethereum
• The easiest options are to mint in the platforms. The order of priority is
  • Opensea (NFT)/ Foundation (Art)
  • Rarible
• List in the same platform
• Although royalties are onchain now, the royalty distribution is semi-onchain, as the marketplaces distribute the royalty once a month. Opensea has MyCollectionEditor – in which the collection owner can specify the royalty receiving address too. Opensea distributes the amount once a month.
• Opensea has released an on-chain royalty toolkit, and soon we can see the instantaneous distribution of royalties from all platforms.

Note:

• For advanced users, NFTs can also be minted directly on-chain, but a basic level of coding knowledge is needed. Read Here.
• Once this NFT is minted the creator can custom set Royalty in Rarible minter and list it. Read Here.
• This advanced feature is, unfortunately, not available in Opensea now.

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