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Aug 31, 2022

Creator Royalties: Creators are in Control

Contrary to popular belief creator royalties are NOT a main pillar the Web3 space has been built on.

Royalties were originally introduced by crypto-art marketplace SuperRare, and have since taken the NFT world by storm. In their current implementation they are NOT enforceable at the smart-contract level. This means that it is up to individual marketplaces to enforce royalties on behalf of creators. In the past, creators had to create an account for each individual marketplace and manually set their royalties. For example: If you sell something on OpenSea, then OS receives the royalty, and will send it out to you. If they forget to set it up then they will NOT  receive royalties. Fortunately, during the last year there have been positive steps taken by and Royalty Registry, along with the ethereum proposal EIP-2981, to allow creators to set the royalties in a smart contract. Marketplaces should then read the royalty information from the smart contract, automatically collect the fee on secondary sale and distribute it to the creator, but unfortunately there is a new kid on the block whose main selling point is that they won’t play ball with this new standard. 

SudoAMM, a tool for trading NFTs, uses a model similar to DeFi which means that the listings and trades happen entirely on-chain which positively adds to a decentralized future. However it does NOT allow artists to set a royalty percentage. This means creators won’t receive any kickbacks from secondary sales on SudoAMM. Besides not supporting creators though, one of SudoSwaps weaknesses is that it makes no distinction between the different ERC-721 tokens in a collection. This means that even the most rare of bored apes would sell for the same price as a more common one, because it's all based on the smart contract and doesn’t take the individual tokens into account

Members of the Web3 community recognize how important royalties are because creators have impacted this space in such a positive way that this community should do everything to keep them around for the long term. As one member said, “If you don't respect the creator, how long do you think the creator will be loyal to you”. There have been some arguments made that because royalties are unenforceable at the contract level, creators should not expect them and just price in their profits at the start. 

While this is certainly a stoic approach, Web3 is super nascent. Smart contracts are improving daily, applications and blockchains are constantly upgrading and changing, and accepting a poor status quo is the opposite of progress and making a meaningful difference in the future of the internet. 

The decision to add royalties should be set at the creator level. One element that is important to address when discussing creator royalties is: NOT ALL CREATORS ARE CREATED EQUAL. What that means is, a 1/1 artist is not the same as a team that releases a 10k pfp project with a roadmap with a high mint price which is also not the same as a project that is VC backed. Each creator will have different objectives, and different success rubrics and as such should have the liberty to choose their royalties and to have those be respected.