THE FLRDROPS ARC:
How NFT Sales Work
Artists looking to sell their NFTs usually do so via digital marketplaces. A digital NFT marketplace is similar to that of eBay where items are listed for sale. There are also many different methods via which an NFT can be bought or sold via an NFT marketplace. We will cover some of these methods in this article.
Listing an NFT on one marketplace doesn’t automatically list it on all marketplaces. As mentioned above, NFT marketplaces are like eBay for NFTs. An item listed for sale on eBay will not show up on Facebook’s marketplace. The same applies to NFT marketplaces. Individual listing would be required for each marketplace and an NFT will have its own bids on each marketplace.
ERC-721 & ERC-1155 Listings
- Listings and offers for ERC-721 NFTs apply only to the individual NFT within the collection. To sell or purchase multiple ERC-721 NFTs within a collection, multiple listings/offers would need to be made.
- As the ERC-1155 NFT standard allows for the minting of multiple copies of the same NFT, listings and offers can be made in batches. This means an owner can list 20 copies of the same NFT in a single listing, and buyers can make an offer on 20 copies in a single offer.
- On FLR Drops, it is possible to partially fill a buy or sell order on ERC-1155 NFTs. This means a listing for 20 copies of an NFT could be filled by multiple buyers through a single listing.
- Owning your own collection/contract makes it easier for you to promote your work as you can share your entire collection. It also allows you to assemble a certain style of artwork per collection. Owning your own collection will also allow integration within other marketplaces.
The most common sale method for listing an NFT is by setting a fixed price. Pretty much self explanatory. The owner specifies a price at which they want their artwork to be sold for.
Collectors interested in a specific NFT or an edition of a collectible are able to submit offers to the owner in the hope of purchasing the NFT at a desirable price.
Another popular method for selling NFTs is via auctions. Typically, auctions allow the owner to set an auction duration and minimum price. The NFT will be sold to the highest bidder at the end of the elapsed time. There are many different auction formats that we will cover in a future article.
The floor price refers to the lowest list price for an NFT within a specific collection. Similar to marketcap, it is a metric widely used by collectors to evaluate an NFT collection.
A Floor Bid is where a Collector places an offer on an entire NFT collection. All of the owners of the NFTs contained in the collection will receive the Floor Bid offer and they can decide whether to accept the bid or not individually.
What are Royalties?
NFT royalties are payments that compensate the original NFT creator for the use or sale of their NFT. Traditionally, royalties reward the creator a percentage of sales or profits. With NFT’s, royalties are usually set by the artist during the minting process.
How do Royalties work?
NFT royalties work similarly to traditional royalties. For example, a recording artist can have their contract stipulate that they get paid a royalty percentage of each album sold. Or they may receive a royalty every time their song gets played on the radio. In either case, the artist is relying on the record company to fulfil the obligation.
The old system excludes artists from ever benefitting from subsequent sales. Imagine an artist struggling to get by who sold a painting for a pittance, only to see it sell for millions of dollars in a Christie’s auction a decade later. NFT’s are disrupting the old system and artists now have the ability to get their fair share of future sales.
Royalties from NFT’s give the original artist a percentage of the sale price every time the NFT is traded on a marketplace. Most NFT marketplaces allow the artist to set their royalty percentage and the payments are automatic upon each subsequent sale in the secondary market.
Marketplace Royalties & Fee Structures
Many of the largest NFT marketplaces have implemented their own bespoke royalty payment solutions that are incompatible with other marketplace solutions. NFT marketplace smart contracts are varied by ecosystem and are not standardized.
OpenSea transactions are on-chain, so there are gas fees for trading and minting. There is also a 2.5% marketplace fee for each trade. OpenSea allows creators to set their own royalty percentage up to 10%.
Rarible transactions are on-chain, but creators have the option of minting for free (Lazy Minting). In this case, the buyer of the NFT pays the minting gas fee. Additionally, creators have the ability to set their royalty percentage up to 50%. Rarible takes a 2.5% fee from the buyer and 2.5% from the seller for each NFT transaction.
Due to the differences in marketplace contracts, subsequent listings of an NFT on various marketplaces will require the setting of royalties for each individual marketplace.
A standardized way to retrieve royalty payment information for NFT’s has been developed. The EIP-2981 standard enables universal support for royalty payments across all NFT marketplaces and ecosystem participants.
In a bid to provide ongoing support for artists, one would expect marketplaces to implement this royalty payment standard. NFT buyers should assess the royalty payment as a factor when making NFT purchasing decisions.
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