What are NFT Royalties and How Do They Work?

NFT royalties are a big deal for digital creators looking to earn more than a one-time payment. Unlike traditional art sales, where artists only get paid once, NFT royalties let them collect a small percentage each time their work is resold. 

Imagine selling your digital art and then getting paid again whenever it changes hands – that’s the power of NFT royalties. But there’s more to it than just collecting extra cash. How exactly do these royalties work? Are they always consistent? Here’s everything you need to know about the benefits, mechanics, and challenges creators face with NFT royalties. 

Key Takeaways:

• NFT royalties allow creators to earn a set percentage (around 10% of each sale) from every resale of their digital assets.
• Royalties in NFTs are managed by smart contracts on the blockchain, automating payments and removing the need for third-party intermediaries.
• Some NFT marketplaces like Magic Eden let buyers opt in or out of paying royalties, which can impact creators’ income.

What are NFT royalties?

NFT royalties are essentially a cut of the profits that creators earn every time their digital artwork, or NFT, is resold. Unlike traditional art sales where artists typically only profit from the initial sale, NFTs allow them to earn a percentage of every subsequent sale. This means that as the value of their work increases over time, so do their potential earnings.

Royalty rates for NFTs usually range from 5% to 10% but can vary depending on the platform and the creator’s preference. These rates are programmed into the NFT’s smart contract. For example, if an artist sets a 7% royalty and their NFT sells for $1,000, they’ll receive $70. If the same NFT is resold for $10,000 later on, the artist would then earn $700.

How do NFT royalties work?

The royalties work through NFT smart contracts, which are self-executing agreements built into the blockchain. These contracts specify the royalty rate set by the creator when minting the NFT. Once the royalty terms are locked into the NFT’s smart contract, they can’t be changed and will apply to all future sales as long as the resale happens on a platform that respects the royalty.

For instance, if a digital artist uploads their artwork to an NFT marketplace and sets a 10% royalty, they’ll receive 10% of the proceeds from every subsequent sale. Every transaction is recorded on the blockchain, making the system transparent and secure.

While most NFT marketplaces honor these contracts, it’s not a universal practice. Some platforms allow buyers and sellers to bypass royalties, which is a growing concern for NFT creators who depend on royalties for supplementary income.

Benefits of NFT royalties

1. Continuous Revenue Stream: The royalties provide a steady stream of income for an NFT creator, with some earning up to $10,000 monthly on some expensive NFT collections. This is a significant change from traditional art sales.
2. Transparent and Automated Payments: The use of blockchain technology means royalty payments are automatic and require no third-party involvement. Smart contracts ensure creators receive their due percentage every time they make a sale.
3. Incentivizes Digital Creativity: This system encourages digital creativity as creators benefit from each resale of their work. Artists, musicians, and game developers are increasingly exploring digital formats.
4. Allows Control Over Royalties: Most NFT platforms empower creators to set their own royalty percentages, aligning them with their goals and the value of their work.

Challenges of NFT royalties

1. Optional Royalties: Not all NFT platforms enforce royalties, so creators might not earn royalties if buyers trade on marketplaces with optional or zero royalty fees, like Magic Eden. This setup favors buyers but leaves creators underpaid.
2. Easily Bypassed: Some technical workarounds, such as “NFT wrapping,” let buyers avoid royalties by changing the NFT’s code, so royalties don’t get paid. This loophole reduces reliable income for creators.
3. Restrictive Technology: Enforcing royalties strictly requires “allowlists,” which limit where NFTs can be sold or transferred. This restricts the NFT’s functionality and makes it harder for users to freely trade or move their NFTs.
4. Buyer Reluctance: High royalties can discourage buyers, especially investors aiming for profit. Lower fees attract buyers but can cut into artists’ earnings.

The need for NFT royalties

NFT royalties address a long-standing issue for creators in the art, music, and digital content spaces – fair compensation for the increasing value of their work. 

For centuries, artists only got paid once for their work, regardless of its future resale value. By providing a structure where artists can benefit as their work appreciates, royalties help level the playing field.

With the global NFT market estimated at $80 billion in 2025 and projections showing it could reach $231 billion by 2030, NFT royalties are a vital component of this ecosystem. Royalties give artists a reason to embrace digital ownership, enhancing the credibility and value of digital assets. This system also benefits NFT collectors, encouraging them to pay royalties knowing it helps support the NFT creators directly.

How are NFT royalties earned and paid?

Let’s break down how creators earn NFT royalties in a few simple steps:

Step 1: Creating an NFT

Earning royalties starts with minting an NFT, which involves uploading a digital asset (such as art, music, or video) onto an NFT marketplace. 

The artist or creator will select a marketplace like OpenSea, Rarible, or Foundation and mint the NFT, embedding a chosen royalty percentage in the smart contract. This percentage is usually in the 5% to 10% range, and it ensures the creator receives royalties on all future sales.

Step 2: Selling an NFT

Once the NFT is minted, the creator lists it for sale, either through an auction or at a fixed price. This initial sale earns the creator an upfront payment, and from there, every resale triggers the royalty payment according to the terms set. As the NFT’s value grows over time, these secondary market sales can yield significant income for the creator.

Step 3: Collecting Royalties

Each time an NFT is resold, the royalty payment is deducted from the transaction amount and sent to the creator’s digital crypto wallet (like MetaMask or Trust Wallet). Since the blockchain stores each transaction, there’s a clear, transparent record of every sale and payment. This automation eliminates the need for third parties or manual follow-up, making royalty payments seamless.

The future of NFT royalties

As the NFT space continues to grow, there’s an increasing call for standardized royalty enforcement across platforms. Inconsistent royalty policies have been a challenge, with some NFT marketplaces not enforcing royalties or offering “opt-in” options.

Several large platforms began discussing standardized royalties, which could protect creators from missing out on payments. As regulations catch up, stronger copyright protections for digital assets could further secure royalties for creators.

There’s also the potential for NFTs and royalties to expand beyond art and music, branching into areas like real estate, virtual assets in the metaverse, and ticketing. 

For example, musicians can sell concert tickets as NFTs with royalties. This means that they earn a percentage every time they resell a ticket. Similarly, real estate in virtual worlds like Decentraland can generate royalties for developers. By expanding into these areas, NFT royalties might reshape not only the digital art landscape but also the way we think about ownership in the digital age.

Final Thoughts

In a nutshell, NFTs have changed the game for digital creators, giving them a new way to earn money through resale royalties. This offers a fairer and more lucrative opportunity for artists, musicians, and other digital creators. 

While there are still challenges like optional royalties and market fluctuations, the potential for NFTs to reshape digital ownership is huge. As the NFT ecosystem grows, we can expect more standardized royalty policies to protect creators and ensure they receive fair compensation for their work. Whether you’re an artist or a collector, understanding NFT royalties is crucial to navigating this rapidly expanding field. It’s not just about the money; it’s about recognizing and valuing the work of creators in the digital age.

FAQs

What is the average royalty fee of NFT?

The average NFT royalty fee typically ranges between 5% and 10%, though creators can sometimes set it as high as 20%. It depends on the NFT platform’s flexibility and the creator’s preferences.

Which NFT marketplace enforces royalties?

Some NFT marketplaces actively ensure that artists receive royalty payments for secondary sales of their work. Art Blocks, a well-known platform focused on generative art, uses smart contracts that automatically uphold royalties, so creators earn each time their art is resold. 

In a similar push, Magic Eden and Yuga Labs are launching an Ethereum-based marketplace that will strictly require royalty payments for all creators on the platform (Source: The Block). Yuga Labs has also pledged to pull its collections from any marketplace that does not enforce these royalties, reinforcing its dedication to supporting artists’ earnings.

What are the copyright laws for NFT royalties?

NFT royalty laws are still developing, and clear rules about royalties for digital assets like NFTs vary around the world. Copyright laws protect an artist’s original work by giving them control over its use, reproduction, and sale. However, they don’t automatically ensure royalties for NFTs when they are resold.

Some countries, like those in the European Union, have laws allowing “resale royalty rights” (called droit de suite) for physical art, but these don’t apply to digital art like NFTs. In the U.S., there’s no nationwide law for digital resale royalties. This means that creators have to rely on the policies of individual NFT platforms.

What kind of NFT sells best?

NFTs tied to unique or rare digital art, exclusive collectibles, or high-profile creators usually perform best. Other successful categories include NFTs offering special utility, like access to exclusive content, virtual real estate, and in-game items for metaverse platforms.