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What’s the Ideal Royalty Percentage For an NFT Collection?

What’s the Ideal Royalty Percentage For an NFT Collection?

The Non-Fungible Token (NFT) industry can be traced back to the early days of the internet. The first NFTs were digital collectibles created on forums and message boards. These tokens were simply images or text used to represent a unique asset.

However, it wasn't until the development of blockchain technology that NFTs really began to take off. Blockchain provided a way to securely and permanently store data on a decentralized ledger. This made NFTs much more secure and trustworthy than traditional digital collectibles.

Since then, the NFT industry has exploded in popularity. Millions of dollars worth of NFTs have been sold, and the market is only getting bigger. With the help of blockchain, the NFT industry is revolutionizing the way we think about digital ownership.

This article discusses NFTs, including where they came from, important milestones, and what to expect in the future.

The Origin of NFTs

The first-ever known non-fungible token (NFT) was created in 2014 by Kevin McCoy and Anil Dash. It was called Quantum and consisted of a video clip of digital art created by McCoy’s wife, Jennifer. Originally, the technology was called “monetized graphics,” and Quantum was registered on the Namecoin blockchain and sold to Dash for $4. Today, it’s on sale for $7M.

In October of 2015, three months after the launch of the Ethereum blockchain, the first NFT project, Ehteria, was launched and demonstrated at DEVCON 1 in London. Most of the 457 NFTs went unsold for more than five years until March 13, 2021, as interest in NFTs was renewed. These remaining pieces sold out in 24 hours for a total of $1.4M. At the time of their launch in 2015, their cost was only $0.43 each.

Increased public awareness began in 2017 when an online game CryptoKitties monetized cat NFTs. During 2020, the value of the NFT market exploded, tripling to $250M. During the first quarter of 2021, more than $200M was spent on NFTs.

Or Was the Origin in 2012?

There is another origin story out there on NFTs worth discussing, known as Colored Coins. Colored Coins, created in 2012-2013, are made of small bitcoin denominations–known as a single satoshi–which can be used to represent a multitude of assets and have multiple uses, including:

  • Coupons
  • Property
  • Issue shares of a company
  • Ability to issue your own cryptocurrency
  • Digital collectibles
  • Access tokens

Unfortunately, the whole Colored Coin system carries several flaws. But, they played a significant role in laying the groundwork for NFTs. You can learn more about them here in the “Overview of Colored Coins.” 

Counterpoint: “Counterparty”

Another early consideration for the creation of NFTs is Counterparty. Counterparty is a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain. It allowed asset creation and even included a trading card game and meme trading, where Rare Pepes originated.

Rare Pepes

In October 2016, “rare pepes” were issued along the Counterparty platform. A rare pepe is a meme featuring a frog character that has developed an intense fanbase. Besides being incredibly quirky, the uniqueness of these images makes them such desirable NFTs. 

How the NFT space has evolved

In simple terms, an NFT is a unit of data stored on a variety of digital ledgers called a blockchain, which can be sold and traded. But, what started as a simple video clip has evolved into many use cases across various industries. But, perhaps none is more compelling than the art industry.

The History of NFT Art

Art is perhaps the most common way to use NFTs, as auctions from high-profile NFTs have made the biggest splash in public attention. Currently, the most expensive NFT ever sold was at an auction price of $91.8M–work by artist Pak, entitled The Merge.

The merge

The Merge is both a single piece of artwork and a series of artworks. When it launched, buyers could purchase an NFT, called a mass, for a set amount of money ($575). However, for buyers who purchased more than one mass, instead of receiving another NFT, their current mass actually increased in size. The price of a mass NFT grew throughout the sale, and buyers who bought a lot of mass were rewarded with free mass. 

It sounds a little confusing, but if you can picture a tiny ball of mercury as one mass, then add other tiny balls of mercury to it, you can see how each comes together to get bigger and bigger. That’s what The Merge is and was before the sale was brought to a close. Now, even though the launch is over, buyers and traders can still sell or trade their NFTs to grow their mass bigger, making their NFT more valuable. 

In the end, more than 28,000 buyers spent over $91M on what has been one of the most compelling NFT art concepts to date.

Everydays: The first 5000 days

The second most expensive (at $69M) was a piece of artwork by Michael Winkelmann–known as Beeple–called Everydays: the First 5000 Days.

Beeple is a graphic designer and motion artist from South Carolina who is well-renowned in the digital art world. However, his rise to fame reached a new height with his NFT collage created from 5,000 images created daily for 13 years. The images were put together and formed one NFT unit that sold for almost $70M making it the third-most-expensive piece of art ever sold.

CryptoPunks

Perhaps, the most well-known NFT digital art pieces are the collection of CryptoPunks, which is credited with starting the NFT craze of 2021.  

CryptoPunks is a series of 10,000 unique collectible characters stored on the Ethereum blockchain. Each character is created using an algorithm and no two are identical. The images are 24x24 pixels and feature some combination of guys, girls, apes, zombies, and aliens. While some of the images share attributes, the rarest ones feature the fewest attributes. For example, on the current marketplace, CryptoPunk 5822 is on sale by the owner for $34.89M. It features one attribute–a bandana–which is only shared by 481 punks. 

Perhaps the wildest part of CryptoPunks is that initially, they were all free. One simply had to claim them. Now they sell for hundreds of thousands to multi-millions of dollars.

CryptoKitties

In the 90s, we had Tomagotchi–a handheld digital pet that you could feed, love, and–if neglected–kill. In the 2020s, we have CryptoKitties! CryptoKitties are digitally created breedable and collectible cats. Each is one-of-a-kind and cannot be replicated, taken away, or destroyed.

It turns out that breeding digital pets is big business for at least a short period of time. While CryptoKitties was the first widely recognized blockchain game and featured astronomical growth, the popularity was short-lived. In fact, it reached its peak on December 10th, 2017. But, by the beginning of 2018, the game’s popularity fell by 90% of users. However, for those that were fortunate during that short time. One CryptoKitty fetched $1.3M, another $566,000, and the third most expensive CryptoKitty was sold for $107,000.

Bored Ape Yatch Club

Similar to CryptoPunks, Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique, algorithm-created images. Except instead of aliens, zombies, and humans, BAYC features images of–you guessed it–apes. In March of 2022, sales of BAYC made up more than a third of total NFT sales. In January of 2022, BAYC surpassed $1B in total sales.

Who Can Create & Purchase NFTs?

The easy answer is that anyone can create or purchase NFTs. Some companies help guide you through the process of creation, connecting your content through blockchain, and getting the proper paperwork done to develop your own NFTs. Purchasing is also as easy as connecting with an online marketplace and working with vendors to purchase or acquire the NFTs you want.

You can launch your NFT collection in seconds with Mantial. We assist everyone, from entrepreneurs to celebrities and large companies throughout the whole process of conception, sales, and management of NFT collections.

In Conclusion

The future is wide-open for the NFT industry. As it becomes more and more popular, creators and even NFT experts are still exploring the possibilities of this technology and how it collides with our everyday lives. While the exact future of NFTs is uncertain, the market is expected to continue growing, and NFTs worth millions of dollars today could be worth billions in the future. 

And, when money like that is involved, everyone will want a piece of the action.

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The Walking Dead

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Rick’s NFT

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The Walking Dead

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Michonne’s NFT

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Key points:

  • Royalties are monies automatically paid back to NFT artists and collectibles creators as a percentage of after-market sales.
  • NFT marketplaces commonly allow royalties to be set up to 10%, while some can go as high as 25%.
  • The ideal royalty percentage depends on the type of collection being offered whether it’s high-volume collectibles, limited-edition collections, or one-of-a-kind masterpieces.

The advent of decentralized blockchains, smart contracts, and NFTs is arguably one of the greatest advances in modern times. In fact, the invention of NFTs is nothing short of the reinvention of commerce. 

In fact, NFTs are so new, that there are really no rules or generally accepted best practices within the industry. While minting NFTs has become commonplace and relatively simple, the practice of marketing NFTs is anything but written in stone. 

And one aspect of marketing NFTs that creators don’t often consider until the last moment is where to set the royalties. 

In this post, we’re going to provide some quick and easy food for thought on the topic of setting royalties for your NFTs. These tips are relevant mainly to art and collectibles. 

First, what are royalties?

The term royalties was originally coined to mean money that is paid to a ruler or landowner by those who are earning money from their land. If the tenant wishes to continue working the property, then a portion of the proceeds from all crop and livestock sales must be remanded to the king or landlord. 

As related to NFTs, however, the term has come to mean any money paid to a creator on after-market sales. That is as opposed to the initial sale of the NFT. 

When an NFT is first sold — often referred to as the initial sale — most of the selling price goes to the creator, and a commission goes to the platform on which the NFT was created. On OpenSea, for example, the creator gets 97.5% of the proceeds and 2.5% goes to the platform. On curated marketplaces such as SuperRare, commissions can be as high as 15%. (That’s still better than the 50% that some galleries take on physical art.)

Royalties come into play on NFTs that are resold after the initial sale. 

The ability to collect royalties on after-market sales is one of the great benefits of selling art and collectibles as NFTs. In the past, if an artist sold a piece of art for $100 and then the buyer turned around and sold it for $1 million dollars, not one dime of the profit went to the creator. On the other hand, if a creator has a contract that calls for a 10% royalty, then $100,000 of that $1 million would go to the creator. 

Prior to NFTs, artists would have to rely upon agents and managers to collect and pay royalties. With NFTs, the royalty payments are automated. There’s no need to trust anyone to do the right thing.

Thoughts on setting NFT royalties

Some NFT marketplaces such as OpenSea allow creators to set after-market royalties up to 10% of the selling price. The same goes for the Rarible and Mintable NFT marketplaces. Others allow even higher royalties. Known Origin allows for up to 12.5% royalties. And hic et nunc allows royalties to be set up to 25%. Furthermore, using a custom NFT smart contract allows creators to set the royalties at whatever they wish. 

So how do artists and creators of collectibles decide where to set royalties? One of the most important considerations when setting royalties is the type of project. 

We can put most NFT collections into one of three categories:

  • One-of-a-kind masterpieces 
  • Limited edition art collections
  • High-volume collectibles

1. One-of-a-kind masterpieces

Artists will oftentimes sell a variety of different NFTs. Some are collectibles, some are limited editions, and some are one-of-a-kind masterpieces. The best example of a one-of-a-kind masterpiece is “Everydays: The First 5,000 Days” by the digital artist known as Beeple. The work sold as an NFT at a Christie's auction for a staggering $69 million. 

2. Limited-edition collections

A limited-edition collection might include a limited number of copies of one item, or it might include a limited collection of individual but similar items. For example, a music artist could sell a limited edition of 1,000 copies of a song. Or a photographer might sell a limited collection of individual but similar photographs that follow a particular theme. 

3. High-volume collectibles

And then there are the high-volume collectibles such as Bored Ape Yacht Club, and CryptoPunks, each of which consists of a collection of 10,000 unique but highly similar NFTs. Some collections contain more NFTs and some contain fewer, but in general, collectibles are counted in the thousands.  

NFT Royalty Rules-Of-Thumb

Here are a few guidelines for you to consider when setting royalties for your NFT collections based on the three types of collections discussed above. 

Setting royalties for large NFT collections

If you’re selling high-volume collectibles such as Bored Apes, it might make sense to set royalties a bit lower than average. This is because earning maximum royalties depends on buyers “flipping” or reselling their NFTs for a profit. 

Because the royalty comes off the top of the selling price, the seller will need to get a higher price than they paid just to break even on the deal. 

For example, if a buyer pays $1,000 for an NFT and the royalty is set at 10%, then they will need to resell the item for at least $1,111 in order to break even. And if the royalty is set at 25%, the seller will need to get at least $1,333 to break even. 

So the lower the royalties are on high-volume collectibles, the more appealing they will be to flippers. That being said, it’s not uncommon for collectibles royalties to be set at 10%.  

Setting royalties for limited-edition collectibles

NFT buyers who buy limited-edition NFTs aren’t generally buying them to flip them. They’re buying them because they are collectors and they are a fan of the artist or project and are generally willing to hang onto their NFTs for some time. 

For these types of limited collections, a minimum royalty of 10% is fair. 

Setting royalties on one-of-a-kind masterpieces

If you’re a well-known artist selling one-of-a-kind masterpieces as NFTs, then your target market is generally going to be wealthy investors who plan to hold onto their investments for many years to come. They might even pass their collections on to their heirs or sell them outside of a marketplace as part of a bigger deal. In these cases, the artist isn’t likely to see any royalties at all on their work — at least for a long, long time. 

Another consideration is that art investors oftentimes consider themselves to be a patron who wants to support the artist’s career. It’s in the best interests of art investors for the artist to be as successful as possible in order for their work to grow in value over time. 

In this case, it’s acceptable to set royalties to their maximum allowable percentage. 

Setting NFT Royalties

Wrapping up royalties

These are just some basic guidelines for artists and collectible creators to consider when setting royalties on their NFTs. 

There are no hard and fast rules except to say that if you want your large, high-volume collection to appeal to NFT flippers it’s best to avoid excessively high royalties.

In a future article, we’ll offer some guidelines for setting initial prices for your NFTs as well as when to consider selling via an auction and when to set a flat price.