When we go over the royalties connected with NFTs, these are typically set by the owner throughout the initial minting process. What this essentially means is that royalties from NFTs give the original owner a percentage of the sale price every single time the NFT creation is sold within a specific marketplace. This will typically range anywhere from 5% ,up to 50% in the case of some marketplace, depending on the NFT, the creator, and platform.
There are numerous NFT marketplaces currently available online that do not give creators access to methods through which they are able to split revenue as well as royalty management across their NFT collection collaborators. However, there is a way, assuming you are not afraid to tinker a bit.
The Evolution Of NFT Royalties
Given the fact that the NFT industry has seen an exponential level of growth throughout the past few years specifically, it has evolved to something a lot bigger than just a single artist creating and selling art as a one-off sale. Today, we have collaborations, which have become an important aspect of maintaining the entire NFT ecosystem.
To get this point across a bit more in-depth, we’ll go over some examples as to how most people have dealt with splitting revenue across multiple NFT collaborators with the tools and methods available to us today.
Keep in mind that while this initial process is a bit complicated, over time, it will be extremely simplified.
NFT Revenue can essentially be split across two stages, and we are going to be taking an in-depth look at each one as a means of analyzing the main differences. There’s:
- Mint Revenue
- Royalty Revenue
During the primary sale minting phase, people will mint NFTs directly from a contract, where they would pay a minting fee in gas plus price of NFT, and all of the revenue would be transacted over the blockchain with earnings being stored within that contract.
Once the initial minting procedure finishes, whoever is the admin of that specific contract can call a withdraw()
function as a means of withdrawing the revenue. This way, they can split it across whoever worked on the NFT project together with them.
However, there’s the royalty revenue, which refers to commissions from purchases that occur after the initial mint. What this means is that creators might want to set a royalty for their NFTs so that a specific percentage, across all and any future sales on secondary market places of that NFT, will be shared with the creators.
This allows for unique business models which essentially allow people to mint for free at the start. However, they generate all of their revenue from the royalties as the NFT token gets re-sold from one collector to another at some point in the future.
With all of that in mind, we will now be moving to split the minting revenue.
Throughout the NFT creation process, there are multiple roles that typically need to be fulfilled unless the creator or project owner is a “jack of all trades”. This includes the following:
- Project Manager
So if there is a maximum of 100% of revenue which can be gained from royalties and a total of four people involved within this project, this would have to be split across four equal parts, or 25% per person or depending on the team’s agreement.
However, while this can be achieved easily within the minting phase, as these four individuals typically work closely together at this point in time and have direct contact with one another, what happens several years down the line when they work on different projects, but the NFT still generates them revenue?
This is where we need to look at the splitting royalty revenue procedure.
Most currently, NFT marketplaces, such as OpenSea, for example, will let you set a percentage fee of a maximum of 10% to only a single payout address.
This means that within the current infrastructure of these marketplaces, you cannot really split the royalties for the collection across multiple people, and only one person needs to be entrusted to receive this revenue and then resend it to the other three people that worked on the project.
However, this would involve a lot of trust, so a system needs to be introduced in this case as a means of splitting the royalties automatically. Note that in regions in the world, such as the United States, there are other legal as well as financial requirements that can make building royalties in perpetuity a challenge with the current set up where gatekeepers are involved and trusted to manage this.
Automatically Splitting Royalties: Potential Solutions
Let’s recap a bit here. You have four people. Only one address can receive the royalties.
This means that a single individual needs to consistently re-send the royalties, specifically 25% to 3 people (assuming equal distribution), or a total of 75%, each time, until the end of time.
Additionally, the other three people have to have a high level of trust within the one person who initially receives the royalties to keep sending them money. This is where a perpetual royalty splitting system needs to be introduced.
Currently, there are numerous third-party solutions out there that promise a way through which you can essentially split the revenue.
This method would essentially allow NFTs that support specific standards, let’s say the ERC-721 or ERC-1155 interfaces, to signal a royalty amount to be paid to the NFT creators or rights holders each time the NFT is sold or re-sold. However, this royalty payment needs to be voluntary, where the transfer mechanism needs to include NFT transfers between wallets, and executing them does not always imply a sale has occurred.
Without an agreed royalty payment standard, the NFT ecosystem will essentially lack an effective way through which teams can collect royalties across all marketplaces, and artists, as well as other creators, will not be able to receive ongoing funding, which will ultimately lead to a hampering of the growth as well as the overall adoption of NFTs and possibly demotivate NFT creators from minting new tokens.
This means that if all NFT marketplaces unify on a single royalty payment standard, which would allow, like in the example, four or more creators of that NFT set or token to gain royalties equally, forever, this will benefit the entire NFT ecosystem and DropKit as a product..
However, this will require some technical know-how to pull off. What you would essentially need to do is create a group address within a service that will allow you to do so. This group address would essentially split the revenue across all of the collaborator’s addresses you connect within it, where you would essentially set each collaborator’s share. So, for example, while in the example above, we mentioned an equal split of 25% for each party, what if some member did a lot more work than another and deserves a higher cut? The goal is for users to be able to select how much revenue goes to which person contributed within the overall development of that specific NFT collection.
Now, once this group address has been created, you would need to connect it to a secondary marketplace that you are using. One of the most common marketplaces is OpenSea, so this is what you would have to do if you connected it to OpenSea. This method might work just as well for other marketplaces. However, each one will have some specific sub-menu that might be a bit different. However, with a bit of tinkering, you will be able to set things up easily over time.
All you have to do is go to the OpenSea collection manager, after which you can place the group address within the royalty setter field, and you can set how much the group would end up receiving. Now remember, with OpenSea, this will be at just 10% at the most, so OpenSea will essentially keep sending royalty from all future sales to the single group address you just posted on there.
Now, each member can visit the initial third-party service used as a means of splitting this revenue in a split address, which in the foreseeable future, will be DropKit from NiftyKit, where they can simply withdraw their share of the entire royalty revenue at any point in time when they would like to, assuming it has been acquired.
But you won’t really need to stop here either. You see, there are many NFT contracts out there that exist commonly within the current NFT ecosystem that utilize a method called withdraw (). What this essentially does is let the admin withdraw funds to their address.
By default, one person gets to withdraw the money, and they have to manually split it across the other collaborators. This was stated above and is still the case here; however, it can be changed. In other words, instead of manually sending the revenue to one user, then another user, and then eventually the last user, depending on how many people have collaborated within the project in question, here, the main admin can re-use the group address created above, where the collaborators will have a single location through which they can withdraw the minting revenue, alongside any royalty revenue which has been earned.
Now, here, we discussed minting revenue and royalty revenue at a statistical point where they are equal.
- The Artist gets 25%
- The Developer gets 25%
- The Marketer gets 25%
- The Project manager gets 25%
But what if you want to change these percentages to differ from the minting phase to the royalty phase?
A simple solution for this dilemma would be to simply set up two group addresses.
This would be the group address for the minting revenue and can be split up 4×25%.
This would be the royalty splitting address, where you could, for example, do 3×30% and 1×10%, or whatever else you feel comfortable with doing or have agreed upon with the team through which you have collaborated on the NFTs.
Moving Forward with NFT Revenue
Hopefully, now you have a heightened level of understanding as to exactly how royalties and splitting could, conceptually, work within the sphere of non-fungible tokens (NFTs) as well as within the current ecosystem of secondary NFT marketplaces.
DropKit’s functionality that will enable this to become a reality is currently in beta and will eventually be released to all DropKit users. For the time being, understanding the issue that needs to be resolved and how it can be conceptually resolved is a major step in the right direction, as this is a dilemma that has been a major part of the NFT industry ever since its inception.
This is due to the fact that, as more and more people get interested in NFTs, some creators might not be able to keep up with the high level of demand associated with the art or sets expected by their fan-base, and as such, might decide to collaborate with other artists or developers as a means of splitting up their work and essentially meet a deadline which would otherwise be impossible to pull off. This is where splitting the revenue, both in the minting process as well as the royalties generated over time, is essential.