The Dude is a fan of embracing reality and dealing with it. After discussing the social construct of royalties in Part 1, we’re now going to discuss some potential solutions.

The reality is that royalties are not enforceable and therefore not reliable, which begs the neutral approach: withhold a portion of supply and (ideally) sell it off in a pre-designated plan. Alternatively, although not mutually exclusive, conduct a “slow mint.”

Nouns has an organic, slow supply release path through the minting process: one Noun per day. Additionally, Nounders (Nouns founders) receive every 10th Noun in lieu of primary or royalty compensation. Effectively, this process makes Nouns immune to the royalty debacle because the next Noun is coming down the pike tomorrow.

From this construct, one could envision a world in which generative art mints once per day or in batches with dynamic pricing: a falling Dutch auction that dynamically holds at certain price points for longer periods of time the more the piece is minted. The result is a greater benefit to the artist from a higher priced initial cash flow while lowering reliance on royalties.

Because, frankly, the punishment path seems severe and the encouragement path seems unrealistic. Royalty payments are undeniably an added benefit of NFTs to artists even if not an organic value proposition. Solutions that encourage the artist to "make more work" (e.g., to raffle off to royalty-abiding collectors) feel like they don't respect the work that went into the genesis art.

Centralized solutions, like Yuga Labs’ idea of a smart contract which only allows transfers on marketplaces which honor royalties (excluding wallet-to-wallet transfers, like intrapersonal and OTC deals), seem to veer away from the decentralization ethos of crypto.

I am personally an advocate for royalty payments. Royalties support artists long after the release of the project, encourage others to make digital cryptoart, and provide ongoing revenue streams for web3 companies/brands. However, I frankly do not believe royalties are reliable.

So what is to be done?

A potential solution for withholding supply combined with a vesting plan could look like this generative art example, as modified from Punk 6529:

• 1k collection

• Add royalties (or not) as the artist prefers

• Hold back 100 randomly for artist

• Auction one per month randomly selected from artist supply for the next 5 years (pre-defined selling plan so there is no signaling value in selling)

At the end of five years, the artist will still own 40. She receives the project cash flow from the mint, royalties, and as a backup, the monthly sales.

What about existing collections without a treasury supply?

Rough stuff. Companies who rely on secondary royalties for revenue are in a quagmire. As a buyer, recognize that the ecosystem you are entering needs those royalties to deliver the products and/or services you expect from your Dynamic NFT.

Lastly, never forget that your actions on the blockchain are immutable and seen for the rest of history.

Take that as you will.

~~

DISCLAIMER: The content posted here does not, and is not intended to, constitute financial advice. Readers should work with a financial advisor to determine whether cryptocurrencies and NFTs are applicable to or appropriate for their particular situation.

Furthermore, there are risks involved in making any investment in cryptocurrencies/NFTs. None of the information presented herein is intended to form the basis of any offer or recommendation or have any regard to the investment objectives, financial situation, or needs of any specific person, and that includes you, my dear reader. Caveat lector!