The Reign of Yuga Labs and RTFKT
Yuga Labs has emerged as the most profitable Non-Fungible Token (NFT) project on Ethereum, amassing a staggering $178.8 million in royalties from April 2021 to July 2023. This figure is over twice the royalties earned by the second most profitable project, RTFKT, which accumulated $83.7 million in the same period. This article is all about the Ethereum NFT royalty projects. Yuga Labs’ collections, including the Bored Ape Yacht Club (BAYC) and Otherdeed, have been particularly lucrative, contributing significantly to the project’s overall earnings. Meanwhile, RTFKT’s CloneX collection, a collaboration with Takashi Murakami, has been a major revenue generator.
Chiru Labs ranks third in royalty earnings, amassing $59.2 million from January 2022 to July 2023. The majority of Chiru Labs’ royalties can be attributed to their flagship collection, Azuki, which accounts for 75.5% of the company’s total earnings. Their latest collection, Azuki Elementals, has already generated $1.5 million in royalties just two weeks after its launch.
The Year of NFTs: 2022
Yuga's Got a $137M NFT Royalty Stash Ready to Ignite Talent and Games in the Bear Market. pic.twitter.com/tmQBJB7yHA
2022 was the most profitable year for NFT projects on Ethereum, with $330.8 million in royalties, accounting for a staggering 69.6% of the total earned royalties from March 2021 to July 2023. The top earners were Yuga Labs and RTFKT, bringing in $115.0 million and $57.0 million, respectively. A remarkable newcomer, Chiru Labs, claimed the third spot as one of the most profitable NFT projects, amassing $53.8 million in royalties.
The Shift in NFT Market Dynamics
The NFT market has seen a significant shift, with both collectors and traders opting to avoid paying royalties altogether, coupled with an overall decline in trading volume from 2022 to 2023. This shift has been attributed to various factors, including the fall of Terra in May 2022, which raised concerns among investors, and the launch of decentralized NFT exchange, Sudoswap, which ignited discussions about the necessity of creator royalties within the NFT community.
The Top Contenders in the NFT Arena
As per CoinGecko’s analysis, Yuga Labs has emerged as the undisputed leader among Ethereum’s NFT projects, amassing an impressive $178.8 million in royalties from April 23, 2021, to July 12, 2023. This figure is more than double the earnings of its closest competitor, RTFKT, which garnered $83.7 million in royalties during the same period. Notably, Chiru Labs, a relative newcomer to the scene, has made a significant impact, securing the third position with $53.8 million in royalties.
The Ebb and Flow of Royalty Earnings
The top 10 NFT projects on Ethereum experienced a steady increase in royalty earnings throughout 2021 and into 2022, reaching a zenith in April and May 2022. However, it’s crucial to note that despite the upward trajectory, there has been a recent downturn in royalties. As reported by Nansen, June 2023 marked a two-year low in royalties earned by NFT projects.
Yuga Labs: The Royalty Champion
As of July 4, 2023, Yuga Labs has managed to accumulate nearly $166 million in royalties across its various collections, including the Bored Ape Yacht Club, Mutant Ape Yacht Club, and Otherdeed for Otherside. In the broader context, NFT collective royalties have surpassed the $1.8 billion mark, with Yuga Labs standing out as the highest earner to date.
Trading Volume vs. Royalty Earnings
While royalty earnings provide one perspective on the profitability of NFT projects, trading volume offers another lens to view the market dynamics. CoinMarketCap’s recent data reveals the top NFT collections on Ethereum by trading volume over the past month:
- Azuki Ethereum
- Bored Ape Yacht Club Ethereum
- Azuki Elementals Ethereum
- Azuki Elemental Beans Ethereum
- Mutant Ape Yacht Club Ethereum
How to calculate royalty earnings for NFT projects on Ethereum?
In order to determine the royalty earnings for Ethereum-based NFT projects, the initial step involves minting the NFT. Minting refers to the process of registering your digital asset on a blockchain network, thereby establishing a unique and secure record of ownership. During this process, you can define the percentage of royalties you wish to receive from subsequent sales of your work, facilitated by smart contracts.
Royalties are essentially a pre-determined percentage of the NFT’s sale price, paid to the creator or original owner each time the NFT is resold. This percentage is established by the owner during the minting process, often following guidelines provided by the secondary marketplace. When a secondary sale occurs, the smart contract automatically directs the specified percentage to the original owner.
While the royalty system for NFTs can vary across different blockchains, Ethereum allows for the flexibility of managing it through smart contract platforms. Typically, NFT royalties fall within the range of 5-10%, with OpenSea, a popular NFT marketplace, capping the maximum royalty percentage at 10%.
However, it’s crucial to note that the enforcement of royalties is not a standard practice across all marketplaces.
For instance, let’s consider an artist who mints an NFT and sets a royalty rate of 10%. If the NFT is initially sold for $100, the artist receives that amount. Later, if the NFT is resold for $500, the artist would receive $50 (10% of $500) as royalty. This process repeats for each subsequent sale, ensuring the artist continues to earn from their work.
How do NFT creators set royalty percentages for their projects on Ethereum?
When it comes to establishing royalty percentages for NFT projects on Ethereum, creators have the power to determine the proportion of secondary sales proceeds they wish to receive. This decision is made during the minting process, where the chosen royalty percentage is embedded into the smart contract. This ensures transparency and permanence, as the contract is immutable.
Typically, the royalty percentages for Ethereum-based NFT projects fall within the 5% to 10% range. However, this is not a hard and fast rule, and creators have the flexibility to adjust this percentage to their preference during the minting process.
The ERC-2981 NFT royalty standard is a proposed new Ethereum token standard that seeks to standardize the royalty system. This standard provides guidelines for calculating and automatically transferring royalty payments to the creator’s wallet each time their NFT is resold on the secondary market.
For instance, if an artist sets a 10% royalty during the minting process of their NFT, and the NFT is later resold for 2 ETH, the artist would automatically receive 0.2 ETH (10% of 2 ETH) as a royalty payment.
However, it’s crucial to remember that not all marketplaces adhere to royalty enforcement. The responsibility lies with the marketplace to act upon the information provided in the smart contract regarding royalties.
Conclusion
The NFT landscape on Ethereum has seen a dynamic evolution, with projects like Yuga Labs, RTFKT, and Chiru Labs leading the way in terms of profitability. However, the shift in market sentiment and the decline in trading volume highlight the volatile and ever-changing nature of the NFT space. As the market continues to evolve, it will be interesting to see how these trends develop and what new opportunities emerge for both creators and investors in the NFT ecosystem.