I’ve started seeing more and more options for people to create art and sell it as an NFT, which seems like a great way for artists to make a little more cash on the side.
However, this isn’t actually what artists need. Artists, just like investors, need a way to make passive income from their art, so that they don’t have to constantly be creating new work in order to live a decent life.
Thus, I think that NFT sites for artists should have the following mechanism: whenever an artist’s NFT is sold to another account for profit, the original artist who created the NFT gains 1% of the profit. (If the NFT is sold for a loss, the artist loses nothing.)
This does two things:
- It gives the artists a source of passive income, similar to what investors often hope to gain by investing.
- It creates a long-term connection between the fans and investors of the artist.
Wouldn’t it be cool to know that you’re helping the artist you support by selling their NFT for the most amount of money possible? When you make money, the artist you’re supporting also makes money. It’s a win-win.
It also means that artists are able to derive value from the long term success of their work. If they suddenly gain popularity, it’s not just the original investors who gain money — the artist themself also gets more funding from the continuing sales of their NFTs.
As an artist and technologist, I think this is the way that NFTs for artists should be done. Enable artists to gain passive income off of the profit from the long-term success of their NFTs. Creating an NFT should not be a one-time sale, and buying an NFT should not be a one-time interaction with an artist or “just an investment” in the way that one buys real estate. Buying an art NFT should be an investment in the artist, and your profit from their success should help the artist as well.
If anyone is interested on working on this idea with me, please reach out to me — I’ve done some Solidity coding for the Ethereum blockchain and I don’t think that this is too hard of an idea to put into practice. If the current NFT sites did it, I think that would be for the best, but I’m worried that building a new platform solely on this idea would be too easily copied.
November 8th, 2021
It looks like OpenSea already has a similar mechanism to what I proposed, called “royalties”. Royalties are a little different than what I describe above, because it creates a transaction fee on every single trade, regardless of whether or not there’s a profit.
This is great for artists, because it means they make money not only when their value goes up, but also every single time a trade is made. However, it makes it more difficult to invest because you know that the value of the thing you buy is 5% (or whatever royalty they’ve chosen) less than what you sell it for, and you’ll need to pay that fee even if you lose money on the transaction.
However, this also means that people can’t use a loophole in the system. In my idea above, traders could transfer the NFT to each other at the same price and agree to pay one another the price discrepancy outside of the platform. Since there would be no profit recorded on the platform, no fee to the artist would need to be paid.
The OpenSea model stops this by putting the fee on each transaction (regardless of the profit). While, yes, the users could still reduce the fee using the method above (paying outside of the platform), they would have to sell the item for literally nothing on the platform in order to completely avoid paying the royalty, and this would be fairly easy to detect and take action against.
Thus, I think the OpenSea royalty method is better for artists, because they’re more likely to make more passive income, but may be less incentivizing for investors, because they need to pay the artist even if they lose money.