How NFT royalties actually work

Royalties were the most genuinely compelling thing NFTs offered artists. Sell a piece once, and every time it resells afterwards, a percentage comes back to you automatically. No gallery, no negotiation, no chasing anyone. For a profession where work routinely appreciates entirely to someone else’s benefit, this was a real idea.

It mostly did not survive. Here is why, and what is left.

What were NFT royalties supposed to do?

A creator mints a piece and sets a royalty — say 5%. It sells for 1 ETH. Later it resells for 10 ETH, and 0.5 ETH returns to the creator. It resells again at 30 ETH, and another 1.5 ETH arrives. The artist participates in the appreciation of their own work, permanently.

Marketplaces implemented this and promoted it heavily. For a period, it worked well enough that creators built plans around it.

Why were NFT royalties never enforceable?

Here is the part that was not widely understood at the time: nothing in the NFT standards enforces a royalty.

ERC-721 defines how ownership transfers. It says nothing about payment. A transfer function moves a token from one address to another, and it does not know or care whether money changed hands, how much, or who should get a cut.

So royalties were never a property of the token. They were a payment marketplaces chose to make when they processed a sale. The contract could declare a royalty — EIP-2981 standardised how — but declaring is requesting, not requiring.

That meant the entire mechanism rested on every marketplace voluntarily honouring it. Which held only as long as no one had an incentive to defect.

What changed when marketplaces made royalties optional?

In 2022 and 2023, competition among marketplaces intensified. Zero-fee and royalty-optional venues appeared, offering traders an immediately better deal: skip the 5%, keep more of your sale.

Traders moved. Volume followed. Marketplaces that had honoured royalties found themselves at a structural disadvantage, and most eventually made royalties optional too — a rational response to a competitor who had already defected.

The outcome was predictable in hindsight. A voluntary payment with no enforcement, in a competitive market, tends towards zero. Today a substantial share of secondary NFT volume pays creators nothing, and a creator’s realised royalty rate depends almost entirely on where their work happens to be traded.

What can creators do about unpaid royalties?

None of the options is clean. All involve a real trade-off.

Should you just price the primary sale higher?

The most common response, and probably the most realistic. Set the primary price at what the work is worth, rather than discounting it against expected future royalties. Treat any royalty income that arrives as upside.

This is the boring answer and it is the one that does not depend on anything outside your control.

Do transfer restrictions work?

Some contracts restrict which operators can move a token, blocking marketplaces that do not pay royalties. This genuinely enforces the royalty.

It also means the asset can only be traded in approved venues — which is a meaningful restriction on the open transferability that was one of the main arguments for putting it on a blockchain at all. Some collectors object, reasonably, that this makes the token less useful to them. It is a real trade-off, not a free win.

Can you build the value into the token itself?

If holding the piece grants something — access, a physical edition, future work, a relationship with the artist — then the token’s worth is not purely resale-dependent, and the royalty question becomes less central. This is the direction most of the durable projects went, and it overlaps substantially with where NFT activity actually moved.

How much does the primary sale matter?

The uncomfortable arithmetic: for the vast majority of collections, secondary volume is negligible. The primary sale is not merely the main revenue — it is effectively all of it. Planning otherwise is planning on a distribution most projects are not in.

What do royalties mean if you are buying?

Two practical points.

Royalties affect your resale economics. If you buy into a collection with a 10% royalty and you sell on a venue that honours it, you lose 10% plus the marketplace fee on exit. The profit calculator shows what this does to a trade, and the effect is larger than most people estimate.

Whether it applies depends on where you sell. The same token can carry a 10% royalty in one venue and none in another. This is a genuine, if uncomfortable, difference in what you net.

How do you split royalties between collaborators?

For projects with multiple contributors, the split has to be encoded in a contract if it is going to hold. A verbal agreement does not survive money moving automatically, and it does not survive a collaborator leaving.

Use an on-chain payment splitter, and validate the shares before deployment — most splitter contracts are immutable, so incorrect shares are permanent. The royalty split calculator checks that shares total 100% and shows what each person receives per sale.

The honest summary

Royalties were a good idea implemented as a social convention in a system designed to remove the need for social conventions. That tension resolved the way such tensions usually do.

The mechanism still exists. It still pays, sometimes, in some places. It is not a revenue stream to plan around, and a creator who prices their primary sale as though it is will be disappointed.

Next: how to create and mint an NFT covers setting a royalty in practice, and NFT taxes covers what happens when royalty income does arrive.