TL;DR- Royalties are a great way to get some passive income if you make a solid NFT collection. Most collections charge royalties around 5%, but OpenSea officially recommends a 2.5% creator fee to new collection minters. After you’ve minted the items in your collection, you’re paid out royalties on any of the NFTs in your collection are bought or sold in the future. OpenSea locks up these royalties for about two weeks before paying them out to your ETH address.
NFTs may be a little overhyped at the moment, but many NFT collections on OpenSea make an absolute killing on sales and royalties. OpenSea’s own business model has been working quite well, too. Today we’ll examine the OpenSea royalty model and answer related FAQs.
What’s a royalty one more time?
Royalties are earnings that go to the original artist for artwork that he or she made. Royalties apply to all sorts of things- like when a song is played on Spotify by a user- Spotify pays a small fee to the orinigal artist per play. When a movie theater shows a new film- a percentage of all ticket sales go to the studio who made that movie. Naturally, royalties apply to NFTs too- small fees are paid to the original creator of the artwork when the item is bought and sold. On OpenSea, royalties are referred to as ‘creator earnings.’ The jargon’s a bit different, but it’s the exact same thing.
Are you an NFT collection owner? You set your own royalties. OpenSea made a great guide for how to set your royalties despite their otherwise spotty documentation.
Does OpenSea pay out royalties?
Yep! OpenSea pays small fractions of each sale on the secondary market (between two other people that aren’t you) to the NFT collection creator(you). When you make your collection on OpenSea, the platform will prompt you for a payout address (usually Ethereum) where you’ll receive royalties. OpenSea does not pay out these royalties right away, however. There’s a two-week lock up period.
Want to see what other creators are charging in creator fees for another collection? That’s simple. Go to any NFT collection’s homepage and select the Buy Now button on the right side menu to filter items that are for sale at fixed prices. Click on any item.
On the individual item page, hit the buy now button once again. In the pop-up box, you’ll see the creator fees underneath the item name.
What is the average royalty fee on OpenSea?
While most information sources will tell you the average royalty fees are between 5-10%, I’ll take it further and say the actual average is much closer to 5%. Charging 10% raises the buyer’s fees, making the NFT a less attractive buy. Let’s face it: most collections aren’t going to be enormous successes, and really shouldn’t be demanding 10% fees. The supply of NFT collections far outstrips consumer demand for those collections. You can think of NFT royalties as like a ‘sales tax’ for the buyer. The lower prices are, the higher the demand.
First, NFTs create authenticity and scarcity. These two tenants are the antidote to the loads of digital piracy that has plagued the internet for decades. While digital piracy benefits some, it ultimately stifles innovation. Artists should always be fairly rewarded for their work. Thankfully, NFTs are an incredible innovation that bring ownership authenticity into the digital space at a low cost. With NFTs, artists are able to continually be rewarded for their work if they make a successful collection. These rewards incentivize competition and encourage artists to do their very best work.
The second reason is that NFT projects need money to reinvest to the project and make holding an NFT in their collection a rewarding experience. This is why NFT project roadmaps are important. Lazy Lions for instance has ROARwards for its NFT holders, where airdrops of new NFTs and ETH hit user addresses. The Bored Ape Yacht Club famously air dropped Mutant Apes to BAYC NFT owners. Mutant Apes currently have a floor price of 40 ETH. Whoa!
One thing that must not be confused is that royalties aren’t the same as OpenSea’s 2.5% service fee on all transactions. This 2.5% is in addition to the NFT’s price and the creator fees. In my opinion, OpenSea’s fees are too high and unacceptable. As more NFT marketplaces come online to compete, OpenSea will have no choice but to start reducing their outrageous fees.
How should I set my royalties on OpenSea?
First, let me give you some examples of creator fees across some top collections on OpenSea right now. Keep in mind these are the very best projects that are in high demand.
Bored Ape Yacht Club creator fee: 2.5%
CryptoPunks creator fee: 0%
Doodles creator fee: 5%
Mutant Ape Yacht Club creator fee: 2.5%
Lazy Lions creator fee: 7%
Cool Cats NFT creator fee: 5%
Unless you’re Beeple, I’d recommend setting a royalty fee percentage less than 5%. You can see here the two most popular NFT collections in the world right now (BAYC and CryptoPunks) have creator fees of 2.5% and 0%. OpenSea officially advises collection creators to set royalty/creator fees at 2.5%.
Can I change my royalty fee if I change my mind?
Yes. You can always navigate to your collection editor and adjust the percentage fee underneath the creator earnings field. Just know that adjusting this might have consequences for demand for your NFT collection.
I’m super glad that OpenSea has built a platform that allows artists to get paid for their work continuously. Incentives like creator fees encourage artists to come in and do their best work and get compensated for it. In the traditional art world, artists are not usually paid royalties for their paintings once they’ve made the initial sale. Are the descendants of Leonardo da Vinci getting royalties on his work? Probably not.
The last thing I want to say is that if you’re a collection creator, don’t limit yourself to just OpenSea. There are many budding NFT marketplaces like Foundation that have their own cool features and community.