NFT Royalties Explained: What Are They & How Do They Work

Posted on March 30, 2023March 28, 2023 by Anthony Georgiades

NFT royalties are payments sent to the creator of an NFT each time it is resold on the secondary market. NFT royalties function similarly to traditional royalties. In business, for example, the owner of a product receives a percentage of the sales or profits.

In the case of NFTs, the creator can set the royalty percentage during the minting of the NFT.

So, while NFT royalties make it possible for an artist to earn recurring revenue on their work (as long as it’s being re-sold in secondary markets), they’ve been a point of dispute for the various parties.

The following guide explores how NFT royalties work and more.

How Do NFT Royalties Work?

NFT royalties are calculated as a percentage of the sales price specified by the creator. However, this is not a standardized method as each NFT marketplace, like OpenSea and LooksRare, will use different smart contracts to calculate and handle NFT royalties. If the royalty fee calculation ends in a remainder, it can be rounded up or down to 5 or 10 percent.

Royalties apply to almost any type of NFT, whether physical or digital. These can be in-game items and collectibles from blockchain games, artwork, PFPs, tokenized music albums, videos, etc.

The underlying smart contract makes sure the process of each secondary sale is carried out accordingly, depending on the platform. After the sale is verified, the smart contract reserves a percentage, delivering it to the creator’s cryptocurrency wallet. The currency of payment is usually the one supported by the platform. For example, OpenSea supports Ethereum and Polygon, an Ethereum sidechain, so the internal economy runs using ETH.

The percentage of the price sale is pre-defined by the creator, typically 5% – 10%, and this is predefined in the minting stage. So, whenever you buy an NFT directly from the person or project who created it, and then you re-sell it, 5% or 10% of that secondary sale goes to the creator. It’s similar to a company’s shares being traded in the stock market after being sold in an Initial Public Offering (IPO).

An NFT will have a royalty percentage fixed. Some people may think that royalties fluctuate with the market; it’s actually the sale price of the NFT that varies through time and therefore causes variations in the amount of profits creators receive. Price fluctuation will depend on multiple factors, most commonly: market demand, scarcity, and utility.

Why Are NFT Royalties Important?

NFT royalties are a way for digital creators to capitalize on the value of their work through secondary sales. No matter who owns the NFT, a smart contract will ensure the creator receives its fair share.

It’s not just about the minting price; NFT royalties are an appealing (and necessary) source of income for creators. Last year, over $1.8 billion worth of royalties were paid out to creators of Ethereum-based NFTs.

Depending on how well an NFT or a collection is sold, royalties can generate a substantial amount of profits in the long run. In 2021, Beeple, a popular NFT artist, launched an NFT artwork called Crossroads and received around $6.6 million in royalties.

Pros and Cons of Royalties

NFT royalties, while at first glance can be a simple concept, have become a frustrating topic for marketplaces, creators, and buyers; all clashing on how to properly define the sale process so each party benefits somehow. This caused marketplaces and NFT platforms to devise and employ new royalty methods, such as optional creator earnings (explored in the section below).

First, NFT royalties allow artists to generate passive income while their work is being sold in secondary markets. It also gives creators an idea of how much value their NFT is garnering through time. The more popularity it acquires in the market, the creator’s reputation strengthens —most likely.

In the case of Beeple, for example, “Everydays – The First 5000 Days” became the artist’s most well-known work of art, selling for $69 million. His subsequent work didn’t need much promotion as he already established a name in the community, helping him profit millions in royalties from secondary sales.

The cons of NFT royalties would be the price volatility —digital creators cannot expect a steady stream of income from royalties as NFT prices could (and most likely will) fluctuate in short periods of time.

Also, some NFT traders that want to speculate resales don’t like the idea of paying a fair share to creators. In 2022, some NFT marketplaces like X2Y2 eliminated royalties from their platforms and instead enforced optional royalties, which outraged digital artists and caused a sharp decline in trading volume.

Optional Royalties

Optional royalties, or optional creator earnings, allow NFT owners to choose whether or not they want to pay creators a percentage each time they sell their NFTs. In 2023, several NFT marketplaces jumped on this trend, like OpenSea and LooksRare.

LooksRare eliminated default royalties and now grants optional royalties. This means buyers can choose to pay royalties at checkout, making NFT trading more profitable. However, the platform distributes 25% of platform fees to creators and collection owners.

Other NFT marketplaces can provide different types of NFT royalty systems. For example, Ditto Music allows fans to acquire shares in songs from their favorite bands and get paid monthly royalties via Bluebox, the company’s blockchain platform.

Popular NFT Marketplaces Offering Royalties

Not all NFT marketplaces offer NFT royalties. Here’s a quick list of the most popular platforms with the best royalties:

OpenSea: the largest NFT marketplace by volume, offers optional royalties with 0.5% as the minimum for the creator.

LooksRare: offers optional royalties, while creators will automatically receive 25% of trading fees.

Nifty Gateway: enforced royalties; the marketplace takes 5% of the sale price plus 30 cents to cover credit card processing fees.

Rarible: enforced royalties; the marketplace takes 1% on the seller side and 1% from the buyer side for service fees.

SuperRare: enforced royalties; the marketplace takes 15% of the primary sale. Each secondary sale will distribute 90% of the sale to the collector, and the original artist receives a minimum of 10% as a royalty.

Final Thoughts: The Future of NFT Royalties

NFT royalties have been a fairly contentious topic lately. Marketplaces, artists, and collectors alike have differing opinions when discussing an ideal royalty system that benefits all the parties involved. However, NFT royalties have helped all kinds of artists globally create a better source of revenue for their work.

In the art world, royalties are a way to protect artists from having their work unjustly sold without giving them a fair share of the profit. In NFT music, for example, royalties play a slightly different role. NFT albums have become a popular way for artists to sell 99.9% of their work to fans while giving them a small percentage as royalty. This not only allows a broader connection between the artist and the fans but also eliminates intermediaries, like music labels, who take a considerable cut of their revenue.

NFT Real Estate Explained (Read Before Buying)

Posted on March 23, 2023March 23, 2023 by Anthony Georgiades

Non-fungible tokens (NFTs) have been used to disrupt several industries, starting with the art market and diversifying into music, communities, and real estate.

While these rapidly changing markets have been easier to disrupt, real estate could pose a much more significant challenge being a slower market, taking an average of 8 weeks per sale compared to art, which typically takes no longer than a wire transfer.

This article will look at how NFT real estate works, reasons to use NFTs in the real estate market, the top two NFT real estate projects, challenges real estate NFTs could face, and their future in the market.

How Do Real Estate NFTs Work?

Real estate NFTs are similar to traditional NFTs; they can be purchased on cryptocurrency marketplaces such as OpenSea and SolSea using Ethereum, Solana, or the cryptocurrency chosen by the seller. Each NFT is then held in a cryptocurrency wallet.

Real estate NFTs can be used to generate a passive income by representing equity in a real-estate project. They can cover everything from property ownership to a share, in which the NFT holder will be paid much like a traditional dividend. For example, if the NFT owner represents a 15% share in a real estate project, the holder will earn 15% of the net profit.

Due to their tokenized nature, most real estate NFTs can be sold at any time, provided there is a marketplace with sufficient liquidity for the asset. However, some real estate investments will require the owner to hold for an agreed period, which will be made clear before a purchase is made.

Why Use Real Estate NFTs?

With NFTs still being a new technology, how practical are they compared to a system that’s been in place for decades?

Being immutable, NFTs show absolute proof of ownership, improve credibility, and are fully transparent, without many of the complexities of the traditional real estate system, such as surveying and complex contracts. Here are two benefits that NFTs bring to real estate.

NFTs can dramatically decrease the volume of paperwork required to purchase a property. Current real estate investments require copious amounts of paperwork as part of the ownership transfer, which can be overwhelming for all parties involved.

Real estate NFTs help streamline this process, as much of the back-office paperwork can be automated with the NFT’s underlying smart contract. This, in theory, allows buyers and sellers to transfer ownership in a matter of minutes (after legal counsel has been consulted).

Top NFT Real Estate Projects

Origin Story

Origin Story has partnered with the real estate investment group Roofstock to bring real-world real estate properties to the NFT marketplace. Roofstock believes that this deal will help cut sellers’ fees by 50%, dramatically improving the profitability of selling property.

Roofstock also believes that on-chain real estate transfers could increase transaction speeds, streamlining the buying process. Since 2015, Roofstock has facilitated over $5 billion in investment transactions and plans to implement NFT real estate investments in 2023.

The Sandbox

The Sandbox is one of the largest Ethereum-based Metaverses in the DeFi market. Showcasing an entire world to explore, The Sandbox offers unique play-to-earn virtual reality gameplay in which players can buy land plots, buy and sell in-game assets, and complete tasks for rewards.

The Sandbox first rose to fame in 2021, when it was endorsed by Deadmau5, Snoop Dogg, and Atari, all of which own land plots within the digital world. Land plots are valued based on the area they’re in, with land close to celebrities having a higher value. For example, the three plots around the Snoop Dogg Mansion sold for $1.23m, with one selling for $453,000.

LoanSnap

LoanSnap launched the first seven mortgage NFTs in November 2021 in the form of home equity loans. These NFTs work like traditional mortgages, replacing mortgage notes with NFTs.

The location and size of the NFT mortgages were not disclosed and have not yet been available to the general public or crypto investors. However, LoanSnap also plans to issue a stablecoin called bHome. bHome will represent fractional ownership in the NFT mortgage notes, which would allow investors to own a percentage of the mortgage.

Challenges for NFTs in Real Estate

Much like any other new technology, real estate NFTs don’t come without their drawbacks. Firstly, only 12% of Americans understand the concept of NFTs, creating an educational divide. Although NFTs offer a wide array of benefits, the underlying technology could be too complex for everyday real estate workers and home buyers to fully utilize without the risk of hacks and scams, which have been used to steal $100m since July 2021.

Secondly, regulation could make real estate NFTs more complex than first thought. The U.S. Securities and Exchange Commission (SEC) has ramped up its investigation into NFTs, stating that NFTs are being used to raise money, like traditional securities, rather than being sold as art.

Real estate NFTs would undergo a Howey test before they’re accepted into the mainstream real estate market. Should they be considered a security, they will have to be registered with the Securities Exchange Act of 1934, file regular reports, and comply with Rule 505 of Regulation D.

Final Thoughts: Do NFTs Have A Place In The Future Of Real Estate?

In the future, real estate NFTs could be used to streamline both residential and commercial real estate transaction processes, and open the asset class to an international decentralized community of buyers and sellers.

As the real estate market is already heavily regulated, current laws covering privacy and data protection will likely make it difficult to buy and sell real estate properties as NFTs. Property laws in the real estate’s location could also add additional complexity to the deal, with different states and countries having different rules regarding real estate ownership.

That being said, real estate NFTs may begin to slowly influence the real world market, allowing individuals to hold mortgage debt, support new building projects and take part in group investments instead of outright buying and selling a whole property.

Pastel Network is teaming up with Astar to bring NFT security and NFT data permanence to the Web3 Ecosystem

Posted on March 15, 2023 by Tiffany Behnam

Pastel Network is excited to announce that it will be working with Astar, a layer1 parachain in the Polkadot ecosystem. Astar provides the infrastructure for building dApps with EVM and WASM smart contracts offering developers true interoperability with cross-consensus messaging (XCM) and a cross-virtual machine (XVM). Astar and Pastel will collaborate with the goal of providing Pastel’s Web3 tooling solutions — Sense and Cascade — to its NFT ecosystem. This collaboration signifies the continued successes of both Pastel and Astar, and is a massive step forward for the overall NFT ecosystem. It is a testament to the growing need for NFT reliability, security and verifiability, solved via Pastel’s advanced infrastructure.

What is Pastel Network?

Pastel Network provides mission critical Web3 tooling to the NFT ecosystem. Pastel infrastructure enables existing layer-1 blockchains, decentralized applications, or third-party enterprises to protect creators and collectors. From digital collectibles & media to documents & applications, users and developers are able to certify asset rareness and truly store data forever. Lightweight protocols delivered by interoperable open APIs such as Sense and Cascade can be easily integrated across existing networks.

Pastel’s near-duplicate detection system, Sense, is a deep-learning based system that assesses the relative rareness between NFTs, which is used to detect scams / copyright infringement and provide certification of authenticity.

Pastel’s storage solution, Cascade, is a fully-distributed storage protocol that ensures permanent NFT data storage. Every validator (Supernodes) on the Pastel network holds a random, fragmented copy of data, ensuring that a user will never lose their NFTs. It is a pay once and store forever model that prevents centralized points of failure, ongoing maintenance, IPFS link rots, or 404 errors.

What will this collaboration entail?

Pastel is bringing its very powerful and lightweight infrastructure, Sense and Cascade, to the Astar Ecosystem. We will also have collaborative marketing efforts to push for the growth and adoption of Astar as well as the push for builders to use Pastel’s tooling in the ecosystem.

Sense enables marketplaces or NFT projects to certify the rareness of the NFTs. It also allows marketplace builders to drastically reduce the need for manual verification of NFTs and collections being minted on the platform. This provides an additional method of determining rarity based on image rather than through metadata characteristics. For creators, the rarity score allows for their artwork to be protected from plagiarism while it boosts confidence in making NFT purchases for collectors.

Cascade creates an environment where builders will never need to be concerned with long-term storage costs or the process of renewing contracts with storage solution providers. Cascade over-provisions the data and has self-healing properties to ensure data integrity and permanence. Builders can now pay once and store data forever. Additionally, NFT related projects have the guarantee that NFTs minted can be stored in a permanent manner which provides significant value to end users.

How can Astar dApps and projects implement these tools?

Pastel has made it easy for builders to implement its technology into their projects with the creation of a detailed builder’s guide. The guide is available on the Astar Community Bulletin Medium page as well as on the Astar Github and developer documentation page, making it easily accessible to anyone who wants to use it. The guide provides all the information needed to use Pastel’s APIs via its Gateway service, which can be easily incorporated into any build.

For NFT related projects, builders can utilize Sense & Cascade within the Astar (PSP34) NFT standard. For those looking for a robust decentralized permanent storage solution, they can call the Cascade Gateway API during the storage process. Note that Pastel’s Gateway service also pins data to IPFS for continued decentralized redundancy. ArtZero, an NFT marketplace built on the Astar ecosystem, is in the process of implementing Sense & Cascade to help enhance the security and value proposition that they provide to their users.

What does this mean? These highly innovative technologies are an API call away. For example, a project has NFT data that it would like to store on Cascade and run through Sense for rareness certification and authentication. Depending on where the project’s builder wants the API requests to occur, Sense and/or Cascade API requests can be executed at any point in the NFT mint function or completely separately from the function itself. From there, the NFT data will be stored permanently and the asset rareness analysis and authentication information will be sent back to the project via an API call within seconds.

Pastel has made it simple for builders to incorporate its technology into their projects, giving them access to advanced blockchain capabilities.

What does this collaboration mean for the Astar ecosystem and the wider Web3/NFT ecosystem as a whole?

The collaboration between Pastel and Astar has significant implications for both the Astar ecosystem and the wider Web3/NFT ecosystem. By incorporating new functionalities into the Astar ecosystem, builders are now able to refine their projects and offer greater value to end-users. The utilization of Sense within the NFT standards will raise the bar for NFT projects and give creators and collectors peace of mind knowing that their artworks are certifiably rare. The Cascade permanent storage solution also provides confidence to all users that the NFTs they own will never be lost or inaccessible. This collaboration is a significant step forward for the wider Web3/NFT ecosystem as a whole, and will drive innovation, growth, and adoption of these cutting-edge technologies.

About Pastel Network

Pastel Network is a fully decentralized, developer-friendly layer-1 blockchain serving as the preeminent protocol standard for non-fungible tokens (“NFTs”) and Web3 technology.

Pastel allows for the development of third-party decentralized-applications (“DApps”) to sit on top of its Network, enabling developers to enjoy the scalable registration features, storage processes, and security of the broader ecosystem. Lightweight protocols such as Sense — which was built to assess the relative rareness of a given NFT against near-duplicate metadata — and Cascade — which conducts permanent, distributed storage of underlying NFT data — can be integrated cross-chain across various layer-1 blockchains, layer-2 protocols, or other third-party apps.

Pastel is managed by world-class developers, cryptographers, and technologists, supported alongside an experienced and extensive network of marketers, influencers, and third-party agencies. Pastel is backed by key stakeholders including Innovating Capital, a prominent venture fund.

For more information on Pastel Network, visit https://pastel.network/.

Month: March 2023