With the rise in popularity of NFTs (non-fungible tokens), many people are wondering if you can make money every time an NFT is sold or resold on the market. The short answer is – it depends. When you originally create and sell an NFT, you make money from that initial sale. However, whether you continue to earn royalties or make money from future sales depends on the NFT contract and platform.
What are NFTs?
NFT stands for non-fungible token. It is a unique digital asset that represents ownership of a digital or physical asset like art, collectibles, real estate, music, videos etc. Each NFT is unique and not interchangeable i.e. non-fungible unlike cryptocurrencies. NFTs use blockchain technology to provide proof of ownership and authenticity of the digital asset.
NFTs can be bought and sold on various NFT marketplaces like OpenSea, Rarible, SuperRare etc. When someone buys an NFT, the ownership record is updated on the blockchain. The owner has the right to resell or hold the NFT. The creator or original seller can earn royalties when the NFT is resold in secondary markets if the NFT contract has such provisions.
Do you get royalties when your NFT is resold?
Whether the NFT creator/original seller earns royalties when their NFT is resold depends on the initial NFT contract and platform used. Here are some scenarios:
- NFTs minted on platforms like OpenSea: OpenSea allows creators to choose a royalty percentage (upto 10%) when they first mint the NFT. This royalty is paid to the creator everytime their NFT is sold or resold on OpenSea. So you continue to earn money on secondary sales based on the royalty percentage encoded in the contract.
- NFTs minted on other platforms like SuperRare: On SuperRare, creators do not earn secondary sales royalty by default. The cut from secondary sales goes 100% to the owner. However, creators can negotiate royalties when doing an initial sale outside SuperRare and encode it in the contract.
- Private sales: If you sell an NFT directly to a collector via private sale, you can negotiate royalty terms and encode it in the contract. But for secondary sales, you will only earn royalties if the NFT is sold on platforms like OpenSea where your royalty percentage is honored.
So in summary, whether you can continue to earn from NFT resales or not depends largely on the initial contract and platform used for the sale. Negotiating and including an ongoing royalty percentage is important if you want to earn from secondary sales.
What is a secondary NFT sale?
A secondary sale refers to any sale of an NFT after the initial sale by the creator to the first owner. When the first buyer decides to sell the NFT to someone else, that transaction is referred to as a secondary sale. The key entities involved are:
- Creator – The original artist/creator who made the NFT
- First buyer – Person who bought the NFT from the creator in the initial sale
- New buyer – Person who is buying the NFT from the first buyer in the secondary sale
Some examples of secondary sales:
- Alice is a digital artist who creates and mints an NFT of her artwork. She sells this NFT to Bob for 2 ETH.
- Bob is the first owner. After some time, he decides to resell the NFT to Charlie for 4 ETH. This is a secondary sale.
- When Charlie later sells this NFT to Diana for 8 ETH, that is also a secondary sale.
On secondary markets like OpenSea, there can be multiple secondary sales as owners buy and resell the same NFT multiple times. The creator can earn royalties on all these secondary sales based on the percentage encoded in the contract.
Do NFT platforms like OpenSea allow secondary sales?
Most major NFT platforms and marketplaces allow and facilitate secondary sales. Here are some popular platforms that enable both primary sales (by creator) and secondary sales:
- OpenSea: The largest NFT marketplace. It allows secondary trading and supports creator royalties.
- Rarible: Allows creators to mint and sell NFTs directly to buyers. Buyers can resell NFTs on Rarible.
- SuperRare: Digital art NFT marketplace. Collectors can buy and bid on limited edition crypto art and resell them.
- Foundation: Platform for creating, exhibiting and collecting digital art NFTs. Allows secondary sales.
- AtomicHub: Marketplace for atomic assets like virtual worlds, trading cards, video game assets etc. Supports secondary sales.
These platforms make the process of secondary sales easy by providing features like:
- Digital wallets to store NFTs
- NFT listings visible to buyers
- Bidding, auction mechanisms
- Transaction history
- Royalty payouts to creators
Platforms like OpenSea and Rarible have significant secondary market activity where buyers look to flip and speculate on NFTs.
What are some high profile NFT secondary sales?
Some record breaking NFT secondary sales include:
- CryptoPunk #3100 – Sold for $7.58 million in March 2021. Bought for $7,000 in 2017.
- CryptoPunk #7523 – Sold for $11.75 million in June 2021. Bought for $31,000 in 2020.
- Bored Ape Yacht Club – Several million dollar plus secondary sales e.g. $3.4 million for Bored Ape #8817
- Beeple Everydays – The first 5000 Beeple NFTs have changed hands in secondary sales for upto $6.6 million.
- Axie Infinity – Top NFT creature Axies have sold for $300,000+ in secondary sales.
- Decentraland – Virtual real estate plot sold for record $2.4 million.
There are many instances of owners buying NFTs early for a few thousand dollars and flipping them for millions in the secondary market due to surging demand. This highlights the lucrative opportunities from secondary sales.
What are some strategies creators can use to earn from secondary NFT sales?
Here are some tips and strategies NFT creators can use to continue earning from secondary sales:
- Include a creator royalty – Ensure your NFT contract has a percentage royalty clause when you first sell it. Up to 10% is standard. This royalty gets paid out whenever the NFT is resold.
- Sell on NFT marketplaces – Sell your NFT on platforms like OpenSea that fully support secondary sales and royalty payouts.
- Spread ownership – Selling your NFT to more owners means more secondary sales and royalty opportunities in the long run.
- Strategic pricing – Underpricing your initial sales can lead to quick flips and high secondary sales which is good for royalties.
- Build your brand – Having a strong personal brand increases likelihood of lucrative secondary sales for your NFTs.
- Retain partial IP ownership – If you partially retain IP rights, you can potentially earn from derivative works e.g. if your art is used in a game.
With the right prep work during initial sale and smart contract settings, creators can continue earning from their NFTs long after minting them.
What are the risks of relying on secondary NFT sales?
While secondary sales present an income opportunity, relying solely on them has some risks such as:
- Market volatility – NFT prices and demand can be very volatile. Secondary sales may dry up during crypto bear markets.
- Platform dependence – You rely heavily on platforms like OpenSea to support secondary trading and royalties.
- No guarantee of secondary sales – Even if you get royalty terms, there is no guarantee your NFT will resell.
- Discoverability – Secondary markets are flooded with NFTs making it hard for your NFTs to get discovered.
- Blockchain errors – Bugs or errors on NFT marketplaces could prevent you from earning rightful royalties.
Hence it is risky for creators to solely depend on income from future secondary sales. The initial NFT pricing and minting strategy should be viable on its own.
Conclusion
To conclude, whether an NFT creator earns royalties on secondary sales depends primarily on the royalty terms encoded in the initial NFT contract. Marketplaces like OpenSea make it easy to continue earning from secondary transactions. But it is not guaranteed income, so creators should be strategic about theirinitial pricing, minting and marketing to maximize their overall lifetime earnings from an NFT collection.