NFT royalties have been something of a hot debate, unexpectedly. As marketplaces emerged that allowed for 0% royalties, and criticisms of on-chain enforced royalties were made, a debate ignited. However, a Galaxy Digital report last week showed just how much money is on the table with royalties. So, what do we do with that information and what does it mean for gaming?
Galaxy Digital is one of my go-to locations for research on Web3 as they are not only thorough with academic-level methodology, but they have a lot of skin in the game too. Galaxy Interactive, a subsidiary of Galaxy Digital, is one of the largest blockchain gaming venture capitalist firms in the business.
The latest report from Galaxy has an unexpected and hard-hitting statistic that titles this article: over $1.8 billion of NFT royalties have been paid out on just Ethereum-based collections. What are NFT royalties? They are a percentage of each secondary sale that gets paid to the original creator. For example, if you bought a house in a Web3 MMORPG for $10,000 and the royalty fee was set at 6% (a common maximum), the original creator of that NFT gets a cut of $600.
Interestingly, 10 entities (collections, creators, or corporations) made up a staggering 27% of all royalties earned. This isn’t wholly unexpected as many of the collections in the top 10 also have NFTs that command some of the highest prices in Web3.
As you can see in the above graphic, only one game is on the list, which might raise questions. Well, I have answers. The observation should be, “a game made it into the top 10!” This is quite the feat given that very few games operate on Ethereum directly (I don’t believe layer 2s were included, but games on layer 2s likely wouldn’t have been near the list anyway).
The Sandbox in the Top 10
So, why is The Sandbox’s inclusion in the top 10 interesting to blockchain gaming? Well, it acts as a great use case for what’s possible. Royalties for NFTs in games are debated, but another revenue stream — particularly one with that level of potential — will capture the interest of major publishers and indies alike.
The Sandbox has made $26 million passively from secondary sales on a blockchain that has cost users small fortunes in gas fees. Imagine if there were no gas fees and players and collectors could trade freely on the secondary market, unencumbered by taxes of up to hundreds of dollars per transaction. It is not uncommon for the gas fee to outweigh the price of the NFT, detracting buyers.
This could be spun as encouraging corporate greed but it shouldn’t be, it’s an opportunity for success to be all the more rewarding and for the free-to-play model to be further empowered. What’s more, games that house creators, such as Roblox, could see their best creators better rewarded and incentivized. There are many teething problems with NFT royalties, yes, but it’s a problem worth solving.