Do NFTs pay dividends? – NFT royalties explained

How can NFT pay dividends_ They could pay royalties

The NFT industry was largely unknown in 2019. Now three years later, NFTs have become a multi-billion dollar industry, slowly catching up to the size of the  fine art industry.

Thanks to blockchain technology, both the owner and the creator of any NFT can be verified, reducing (although not eliminating) the cases of fraud and theft in the fine art industry. Now that the NFT industry has moved beyond its proof of concept phase and more people are becoming accustomed to owning and trading NFTs, what can be done with an NFT? 

Many people unfamiliar with NFTs still think of them as “glorified JPEGs” and wonder what utility an NFT has for someone beyond simply looking cool in his wallet. So, can NFTs pay dividends? Are there other methods of passive income that can be generated from NFTs? 

In this article, we will first explain what an NFT is, then look at some of the most popular NFT collections that pay the owners something similar to a dividend through airdrops. Finally, we will talk about the most common way for NFT owners to earn passive income through their NFTs through royalty sales.

Does crypto pay dividends? Read On. 

NFTs are not companies and therefore cannot payout dividends. Usually, holders of certain NFT collections can be rewarded with tokens or by being airdropped by other NFTs. Artists could take advantage of royalties, so they added the royalty feature to their NFT collection. However, adding royalties makes it more challenging for artists to sell their collections. 

What is an NFT?

What are Cryptopunks and why are they so expensive?

Cryptopunks are one of the most valuable NFT collections.

To understand how NFT royalties work, it is best to understand what an NFT is and the blockchain technology that powers the NFT. An NFT stands for a “non-fungible token”. Unlike fungible currencies, every item in an NFT collection has a different hash function assigned to it and, therefore, another identifier. 

Two identical images can be two different NFTs held in two other wallets. The image of an NFT itself is technically not that important, as it is considered metadata. What is essential is the token’s ID, used as a guide for who currently owns the NFT, who originally created it, and more. All NFTs are deployed on a certain blockchain, with the Ethereum blockchain currently being the most common blockchain to deploy NFTs on. 

Over the past few weeks, the Solana blockchain has been emerging as another NFT hub, making more NFT sales volume compared to the largest NFT marketplace on Ethereum, OpenSea.

The main takeaway is that an NFT is an asset that is coded by a developer and then deployed on a blockchain. The main value of the NFT comes from ownership: the very fact that a single wallet can only ever own an NFT at any time is why NFTs have a perceived value in a marketplace. Since an NFT is coded, developers can become creative and add more utility to their NFTs beyond just a simple JPEG.

A few examples of NFT royalties

Since an NFT is a coded asset, many developers can add attributes or utilities to the NFT collection. One of the more famous collections showing additional utility is the Cyberkongz collection: every wallet that holds a Genesis Cyberkong NFT (only 1,000 of them in the world) receives 10 $BANANA per day for the next 10 years. These $BANANA tokens can be burned to mint Baby Kongz, more NFTs than can be sold later on.

Of course, another NFT collection that provides some perks for its users is the Bored Ape Yacht Club (BAYC) collection. Each BAYC owner had received a Mutant Ape airdrop, some serums, and even more recently, an apecoin (APE) airdrop worth over $75k when the APE token was released.

For the BAYC collection, it is not the same as the Cyberkongz collection, where the token airdrop was already hard-coded into the NFT collection. For BAYC, the artists just created various airdrops and giveaways to the current BAYC holders after the NFT collection had been launched. Therefore, although an NFT may not have any passive income utilities hard-coded into it, some people can build giveaways and airdrops on top of an NFT collection that was already created.

Where can you find out about Airdrops? Read On.

Finally, an NFT collection could reward its owners for completing certain tasks. This is best exemplified by the Stepn mobile game, which is a move-to-earn game. With Step’n, the people who own certain NFT sneakers can earn real cryptocurrency by walking (or running) in real life.

The main takeaway about NFT dividends is that, realistically, an NFT cannot pay dividends; after all, to pay dividends, one needs to register as a company and basically give a share of the profits to the shareholders. NFT collections are not companies and don’t necessarily generate profit that can be redistributed to the NFT holders. However, since NFTs are coded assets, people could develop creative ways to reward the holders of a certain NFT collection. 

Although an NFT collection cannot hand out dividends, it could hand out whatever the NFT creator codes it. This is usually in the form of NFT or token airdrops. The other way an NFT collection can hand out passive income is through royalties!

nft sneakers.

NFT Sneackers. People who own certain Stepn NFT sneakers can receive GST or GMT tokens by running with the app on. Via [Stepn].

How NFT royalties work

NFT collections are coded by someone, either by using common templates like OpenSea or by coding from scratch using programming languages such as Solidity (for EVM-compatible chains) or Rust (for Solana NFTs). For many artists, NFTs are attractive due to their lifetime royalty feature. Since an NFT is a coded asset, people could give it whatever properties they want. Many artists put a 10% royalty fee on their collections so that whenever an NFT sells or trades hands between two people, the creator of the NFT collection receives 10% royalty. 

Since NFTs are technically immutable on the blockchain, the artist might receive royalties from his NFT collection for a certain period; as long as those NFTs are trading hands and selling, the artist could get his royalties delivered directly to his web3.0 wallet. 

The main takeaway here is that since NFTs are coded assets, people can put a commission or royalty structure however they please. Many creators look at NFT royalties as an advantage, but in practice charging a royalty above 20% makes it more challenging for artists to sell their art. Regardless, this royalty structure remains much more attractive than the usual fine arts scene, where artists must pay ridiculous commissions to their art broker to get their art sold. 

Bottom Line

NFTs are not companies and therefore cannot payout dividends. NFTs are assets that are coded and deployed onto a blockchain. Since these NFTs are coded, they can present different attributes or rules depending on the NFT collection, the creator, and the NFT itself. 

Usually, holders of certain NFT collections can be rewarded with tokens or by being airdropped by other NFTs. Artists could take advantage of royalties, so they added the royalty feature to their NFT collection. Overall, we have only started exploring what NFTs can and cannot do, and it will be interesting to know how the holders of specific NFT collections will be rewarded in the future. 

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