NFT exchanges criticized for reducing artist royalty rates during a difficult market downturn viewed as a shortsighted approach.

NFT exchanges criticized for reducing artist royalty rates during a difficult market downturn viewed as a shortsighted approach.

The Future of NFTs: Balancing Artists’ Income and Trading Accessibility


The world of non-fungible tokens (NFTs) has experienced significant friction recently, as top NFT exchanges Blur and OpenSea have reduced royalty rates payable to artists when ownership of a token changes hands. The goal is to stimulate buying and selling by lowering costs. However, this move could potentially hinder the creation of new works, resulting in a stagnant market that has already seen a drastic decline in trading volumes.

According to Token Terminal, trading volumes in the NFT market have plummeted by 95% since January 2022, from a peak of $17 billion to a mere $4.3 million in July 2023. Royalties, which reached $269 million in January 2022, have also seen a sharp decline. The rates paid per transaction have fallen from as much as 5% to 0.6%. The consequences of diminishing artist income could have serious implications for the sustainability and growth of the NFT market.

“It’s a shortsighted strategy, neglecting the fact that sustainable success in this space is built on a delicate balance of empowering both traders and creators,” says Phillip Kassab, the growth lead for NFT and gaming at blockchain technology specialist Sei Labs.

The popularity of NFTs was at its peak from August 2021 to May 2022, with cumulative monthly royalties reaching an impressive $1.5 billion. This surge was fueled by collections like Yuga Labs Inc.’s Bored Ape Yacht Club. However, as the NFT market experienced a downturn amid fading pandemic-era stimulus, creator payouts took a hit.

The dynamics of the NFT market were further disrupted with the introduction of Blur in October. This platform incentivized trading by reducing royalty rates and now commands over 70% of the daily volume on the Ethereum blockchain, according to Dune Analytics. This move spurred OpenSea, the marketplace that was previously in the lead, to follow suit and adjust its royalty rates.

“With the launch of Blur, NFTs became progressively more financialized,” explains Ally Zach, a research analyst at Messari. The question now is what lies ahead for NFTs. Skeptics argue that the earlier popularity of digital collectibles was merely a fad. However, artists like Beeple, renowned for his NFT “Everydays” that sold for $69.3 million in 2021, believe that the sector will experience a resurgence.

Various suggestions have been put forward to address the issue of royalty rates. Some propose encoding royalty rates into the software that governs NFTs instead of allowing exchanges to adjust them. Others champion marketplaces like SuperRare and Art Blocks, which enforce the proper payout of royalties.

“As with all things in web3, rules must ultimately always be governed through code, not through hoping social norms will be enough,” asserts Chris Akhavan, chief gaming officer at NFT marketplace Magic Eden.

OpenSea’s Chief Business Officer, Shiva Rajaraman, believes that the responsibility falls on the industry to explore new opportunities for creators to engage with their communities and make a living. One example he offers is linking NFTs to merchandise, where sales could fund income for artists.

For artist Matt Kane, whose NFT “Right Place & Right Time” sold for over $100,000 in 2020, a decline in creator engagement that affects the quality and diversity of NFTs would outweigh any temporary surge in trading volumes resulting from lower transaction costs.

Kane shares that many of his collectors are patrons of the arts, with some even manually sending him royalties after transacting on platforms that do not enforce proper payout. However, not all collectors hold the same view.

“One promise of this technology is moving us into a non-zero-sum economy, where one person’s win is the win of the many,” says Kane. “Right now, we’re going backwards to a zero-sum economy where one person’s win is another’s loss.”

As the NFT market evolves, striking a balance between facilitating trading accessibility and ensuring fair compensation for artists remains a critical challenge. The future of NFTs hinges on the ability of the industry to navigate this delicate landscape, promoting both innovation and sustainable growth.