NFT royalties make art and digital content a sustainable source of income for creators. Since payments are often programmatic, there could be multiple creators who could benefit from this model.
From a principled and economic point of view, NFT royalties offer a number of advantages to the ecosystem. It's challenging to keep track of subsequent purchases of artwork in Web2's creative sectors of music, art, and graphic design. On top of that, contracts drawn up between creative professionals and marquee studios or corporations are often one-sided and strongly biased against the creator of the work.
This imbalance in economic relations is what the Web3 model seeks to correct. On Web3, any work that is minted as an NFT can be traced through subsequent purchases recorded on the blockchain. Thus, the creator can programmatically stay on top of the transaction chain and earn royalties at each point.
In addition, the creator can go to a NFT Market and list and sell their NFTs without the marketplace directly claiming royalties on the purchase. NFTs are critical because you can build an economy around creators, which hasn't necessarily been the strong point of Web2's business models. For many NFT collections, royalties were a great mechanism to finance their operating costs.
NFT royalties can also curb the dangerous practice of wash trade. By creating multiple accounts or wallets, a market participant can buy an NFT or any digital asset whose price they want to artificially inflate. Often their wallets are used to buy an NFT from each other to create the perception of demand and increase the price of the NFT.
To distracted viewers, this activity may seem like a high demand for the NFT. However, this is not the case. Enforcing royalties will ensure that for every transaction between laundering merchants' wallets, a price must be paid. Thus, the cost of keeping the price high increases very quickly, making it difficult for the wash trader to continue.
