Signs of a wide-scope impact of blockchain technology have been shaping up for good in the past years. But while some sectors will benefit from the technology, others could be radically disrupted. One such particular field that could potentially be revolutionized by decentralized networks is artist royalty payments.
There is enough talk in the music industry, among NFT artists and various content creators signaling a major need for change. With the NFT community booming at the moment, there is a particular need for a more clear outline of how creators are compensated. Can blockchain technology bring a more inclusive remuneration system?
The Current State of Royalty Payments
Ask any musician, NFT artist or content creator about their royalty income and you will find few who are happy about it. There seems to be a sense of inequality in how income circulates among artists, labels, marketplaces, and other distribution channels. Truth is, artists’ remuneration has always been controversial. But with the help of blockchain technology, this could now become more transparent and efficient for all parties involved.
Royalties are legally binding payments made to an individual for the use of their intellectual property. This includes copyrighted work in music, film, Web3, and other forms of content creation. In the music industry, streaming services have offered users a great product, at the detriment of artists who are underpaid on each stream. In the Web3 economy, NFTs have brought arguably a better royalties system. Every time an NFT is traded, the original creator gets compensated. But now this is changing on some platforms.
For instance, the Solana-native Magic Eden NFT marketplace has announced they are making creator-royalties optional. For now, it seems the move has split the public opinion in two. Magic Eden justified the change by saying that competitors who don’t pay royalties are eating away at their market share. So it seems in the end everybody is looking to cut corners and benefit more themselves. Perhaps it’s time for a more inclusive and transparent methodology?
Better Royalties with Blockchain Technology
Just like DAOs (decentralized autonomous organizations) are disrupting the investment space, blockchain tech is expected to bring better royalties. This sounds great, but there’s plenty of work ahead. Let’s have a look at some of the challenges.
Streaming could become more transparent and fair by augmenting blockchain technology when calculating music royalties. This, however, is no easy feat. The granularity in the data – per-track details such as user, territory, number of plays, etc… would all have to be on-chain encrypted. This would create a massive transaction volume. A network bigger and more performant than Ethereum would be required to handle the data. Who would take care of the costs?
Web3 Economy & NFT Royalties
With NFT investment, creators finally got a chance for fair compensation. On some marketplaces, every time an NFT is traded, a percentage of the cost goes to the original creator. Being on-chain encrypted, authors don’t have to worry about compliance.
But as stated above, this is not always the case. One problem is that NFT royalties are not designed to be cross-market compatible. It happens so that valuable assets get traded on secondary markets with the authors reaping no benefits. Another thing is that often sellers opt for private over-the-counter transactions, cutting out even the marketplace.
A potential solution for this could be the introduction of a universal token standard for NFTs. This would ensure that all transactions, regardless of marketplaces, would pay out fair royalties to creators. But for this to become a reality, marketplaces and blockchain networks would have to agree on a common practice.
When it comes to crypto royalties, fortunately, things are simpler. As an investor, you can stake a certain amount of money by buying a certain project’s native token in their ICO. In case the company does well, you can earn profit by selling a certain amount of your holdings.
The crypto project you are investing in might be some kind of yield farming, lending, staking, or other DeFi system. Crypto royalties are a good way to invest in a Web3 company that you think will do good. It’s like buying stocks hoping the enterprise will get valued in the future.
A User-Owned, User-Generated Investment Space
So who is in favor of a more inclusive and fair royalties system? And who is against it? It’s not easy pointing the finger, but some things stick out. When it comes to Web3, at the moment, various NFT marketplaces are choosing to carry their business in different ways. While some platforms, like OpenSea, are swearing they will not take out artist royalties, others like Yawww have launched without royalties enabled.
A middle-ground solution is also present. Marketplaces such as Solanart or Magic Eden are leaving the option open. It’s up to the users if they want to pay for royalties or not. In case they choose in favor of royalties, they also get to decide on the amount.
This latter example gives some inspiration as to what the future of royalties may look like. If Web3 is a decentralized, user-owned space, why wouldn’t users have a say in how royalties are set? But is everybody on the same page?
For big NFT projects, even incremental royalties can mean a fortune. It’s important to remember that in some instances, royalties apply to every trade. It’s like getting paid every time your song plays on the radio. But the Web3 economy is not only populated with artists and collectors. Experienced traders have joined in and they will look for a profitable edge under every rock. Therefore, it’s up to everyone involved to develop a healthy ecosystem where everybody gets a fair share.
What does the future of royalties look like in your opinion? Do you fancy any particular NFT collection or a startup at the moment? Visit the Solana-based Unique.vc platform and get invited to co-invest in promising deals alongside experienced investors.
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