The NFT royalty movement's roots can be traced back to a pivotal moment when a collective of crypto artists addressed a letter to SuperRare. This letter was not just a request but a declaration of a new era where artists sought fair compensation for their digital works, challenging the traditional, often exploitative gallery model. This movement was revolutionary, setting a precedent for how artists could gain sustained income from their creations through secondary market sales, embedded within the immutable records of blockchain technology.

The concept quickly gained traction, with Profile Picture (PFP) collections, notably those like Bored Ape Yacht Club (BAYC), embracing royalties. This addition transformed the NFT marketplace, turning it into a lucrative model for both creators and collectors. The system was simple: a fraction of every secondary sale would return to the original artist, ensuring ongoing compensation for their creativity and effort.

However, as the NFT market faced its tumultuous phases, especially during the downturn in 2022, the royalty model was put to the test. Transaction volumes plummeted, and the once-celebrated royalty system came under scrutiny. Amidst these challenges, some began to question the sustainability and fairness of the royalty model, especially in its application to corporate collections versus individual artists.

The conversation around NFT royalties has since evolved, encompassing a range of perspectives from creators, collectors, and platforms. Platforms like OpenSea and SuperRare have made efforts to uphold the royalty system, whereas others have introduced models making royalties optional. This shift has sparked a debate within the community, highlighting a conflict between maintaining competitive market dynamics and ensuring fair compensation for creators.

Amidst these discussions, proposals for universal standards, such as the Ethereum Improvement Proposal (EIP) 2981, have emerged, suggesting a path towards greater transparency and fairness across NFT marketplaces. This debate underscores a critical juncture for the digital art world, balancing innovation with the fundamental principle of equitably compensating creators.

As the discourse around NFT royalties continues, it is clear that the future of NFT marketplaces remains in flux. The ongoing debate presents an opportunity to redefine the value of digital creation, ensuring that the NFT ecosystem remains vibrant, sustainable, and fair for creators.

The exploration of novel NFT royalty models presents an exciting frontier in the digital art world, one that seeks to harmonize the interests of creators, collectors, and the broader ecosystem. By reimagining traditional approaches, we can unveil solutions that not only ensure fair compensation for artists but also enhance liquidity, market efficiency, and community engagement within the NFT space.

Take Note. Reflexive Royalties?
To address the complexities of the royalty model in the NFT market, we propose a profit-based royalty model. This model would calculate royalties not on the total sale price but on the profit realized from the sale.

Time-Decaying Royalties

This innovative model proposes royalties that diminish over time. Initially high to benefit creators when their work is most vulnerable, these royalties decrease to encourage long-term trading and ownership. Such a structure could increase an NFT's liquidity over time, making it more attractive to collectors while still rewarding creators.

Royalty Pooling

Royalty Pooling introduces a collective approach, where a portion of all royalties is pooled and periodically distributed among NFT holders. This model could transform NFT ownership into an investment, offering passive income and fostering a sense of community among holders. It aligns the success of individual pieces with the broader prosperity of the collection or platform.

Hybrid Royalty and Stakeholder Model

Blurring the lines between creator and collector, this model envisages NFT holders as stakeholders in the creator's future projects. By using a portion of royalties to fund new works, this system incentivizes long-term investment in artists' careers, offering stakeholders exclusive benefits and potentially a say in creative directions.

Variable Royalty Based on Utility

Adjusting royalty rates based on an NFT's utility could align fees with the perceived value and functionality of the NFT, such as access to exclusive content or services. This approach tailors the royalty to the unique characteristics of each NFT, potentially making the model more attractive and fair to buyers.

Royalty Caps

Implementing a cap on total royalties payable for an NFT addresses concerns over indefinite payments. Once a cap is reached, the NFT could be traded without further royalty obligations, balancing fair compensation for creators with long-term affordability for collectors.

Profit-Sharing Smart Contracts

Incorporating profit-sharing mechanisms into NFT transactions can create a more interconnected ecosystem. By distributing a portion of resale profits among all previous owners, this model acknowledges the collective contribution to an NFT's value over time, fostering a continuous connection between the creator and the community.

Royalty Auctions

Royalty Auctions offer a dynamic approach, allowing the community to bid for temporary reductions in royalty rates. This could provide immediate liquidity boosts for creators while offering collectors temporary relief from higher fees, adding an engaging, community-driven dimension to royalty management.

Each of these concepts represents a step toward a more equitable, sustainable, and engaging NFT marketplace.

As we continue to navigate the complexities of digital ownership and creator compensation, these innovative approaches to NFT royalties could pave the way for a new era of artistic and economic collaboration. Which model has your preference?