Original author: NFT platformHighlight

Original compilation: Felix, PANews

Main points

• Royalties from NFTs in the Ethereum ecosystem have dropped significantly over the past two years. The average tax rate today is about 0.8%, down 84% from 5% two years ago.

• Using 2021 tax rates as a basis, artists and creators would earn about $37 million less in December 2023 alone.

• OpenSea is still enforcing royalties for a handful of projects, but that will cease on February 29. Overall royalties will then drop to around 0.5%.

• Royalties for art are significantly higher than for other types of items, indicating collectors’ desire to build a positive ecosystem.

Royalties were once a focus of debate over blockchain art, but the debate has receded over the past two years. With the launch of LooksRare in January 2022, followed by X2Y2 and Sudoswap in March and April respectively, these platforms either removed royalty enforcement or eliminated royalties entirely. Blur launched its royalty-free marketplace in October 2022 and its token in February 2023. OpenSea also quickly abandoned royalty enforcement. Each event has significantly and consistently reduced royalty rates. Today, rates are about 0.8%, down 84% from around 5% a few years ago, according to the data.

Overall royalty revenue is down significantly compared to previous market highs. In December 2023, approximately 3339 ETH ($8,315,512.38 at current USD exchange rates) were paid to artists and creators. This is a 96% decrease from the all-time high of 91,982 ETH in January 2022 ($229,418,744.94 at current USD exchange rates), which is over $200 million.

These numbers are shocking, but they also reflect overall market trends. The reason for this phenomenon is a significant drop in market trading volume, not a reduction in royalties. Even doing the calculations based on current market conditions, assuming a 5% royalty rate (approximately 2021 standards), one could see creators and artists losing approximately 15,100 in December 2023 alone under current market conditions The income of ETH is equivalent to 37.6 million US dollars.

This February, things are about to get worse, as OpenSea stops collecting royalties for projects that implement a royalty enforcement tool, known as the Operator Filter.

Despite the clear downward trend, the picture does have some interesting variations, mainly depending on the type of project. We’ll delve into these differences below, but before we do that, let’s review the current context.

Current Royalty Market

While platforms such as LooksRare, X2Y2, and Sudoswap have played a major role in changing the market, resulting in lower royalties, the vast majority of secondary market volume today occurs on OpenSea and Blur. OpenSea removed royalty enforcement in February 2023, but later decided to add enforcement for projects that enabled Operator Filter before August 31, 2023, or were created on non-Ethereum blockchains before that date. This means that a small number of projects currently retain royalties from OpenSea execution. But OpenSea will stop collecting royalties on all projects on February 29, 2024. In terms of user experience, OpenSea allows creators to set royalties in the UI by default.

For NFT series with royalties across all markets, Blur will enforce a minimum royalty of 0.5%. In addition to this, Blur also allows royalties to be set to 0%.

Dive deeper by project type

PFPs

As mentioned above, royalties are trending downward overall, but this change is most noticeable in popular PFP projects like Azuki, Bored Ape Yacht Club, Cryptoadz, and Milady. While these projects once enjoyed royalties of 2.5%-5%, the average royalties on these projects are now even lower than Blurs 0.5%. There were weeks when Azuki was even in the 0.0x% range.

Art

Art performs better than PFP. This may be due to shared public norms and support for individual artists on behalf of collectors. As you can see, while some mainstream Art projects (including several Art Blocks projects) once enjoyed higher royalties than PFP, they now hover in the 1.5% -2.5% range, with some weeks even higher.

Platform comparison

Royalty rates across all OpenSea projects still hover around 2%. On Blur, the rate is about 0.4%. However, this is expected to change significantly given that in February 2024 OpenSea will stop collecting royalties for all projects.

The chart below shows different platform royalty rates (excluding items above 5%). After OpenSea turned off its royalty enforcement tool, its average royalty rate dropped by more than half, to 0.75%. It helps to understand what OpenSeas average royalties looked like after all enforcement was lifted in February.

in conclusion

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