NFT Royalties Explained

NFT royalties are a percentage of each resale price that is paid to the creator of an NFT collection, typically set by the creator and collected by the marketplace when a sale happens. On most blockchains they are not enforced by the NFT itself: the marketplace chooses whether to pay them, which is why royalties became optional on many platforms.

Royalties were one of the original selling points of NFTs for artists. A painter usually earns nothing when a canvas is resold at auction, but an NFT creator could earn a cut every time a piece changes hands. Understanding how that promise actually works helps creators plan income realistically and helps buyers understand what they pay when trading.

How NFT Royalties Work

When a creator launches a collection, they set a royalty rate and a payout address. That information is stored either in the NFT's smart contract, in its metadata, or in the marketplace's own settings. When someone resells the NFT on a marketplace that supports royalties, the marketplace splits the sale: most goes to the seller, a marketplace fee goes to the platform, and the royalty goes to the creator's address. For background on the project itself, see Pudgy Penguins (PENGU) explained.

A simple example: an NFT resells for 1 ETH on a marketplace with a 5% royalty and a 2% platform fee.

The numbers are illustrative; actual rates vary by collection and platform. Network fees for the transaction are separate. If you want to go further, read What Is an NFT? Non-Fungible Tokens Explained.

The royalty standard on Ethereum

On Ethereum, the commonly used standard is EIP-2981, which defines a way for an NFT contract to tell any marketplace "for a sale of this price, send this amount to this address." It is a signal, not a lock. EIP-2981 itself does not force anyone to pay — it simply makes the creator's preference readable in a consistent way. The proposal is published on the Ethereum Improvement Proposals site.

Why Royalties Are Hard to Enforce

The core problem is that an NFT transfer is just a token moving from one address to another. The blockchain does not know whether that transfer was a gift, a move between your own wallets or the settlement of a sale. A marketplace knows, but a marketplace can decide to skip the royalty.

This created competition. Marketplaces that charged lower total fees by making royalties optional attracted traders, and others followed. Over 2022 and 2023, several major marketplaces moved to optional royalties or minimum royalties well below what creators had set. For many collections, resale income dropped sharply.

There are also simple workarounds that bypass royalties entirely:

• Over-the-counter trades: a buyer sends payment directly and the seller transfers the NFT, with no marketplace involved.
• Wrapping or escrow contracts: a third-party contract holds the NFT and trades a claim on it instead.
• Royalty-free marketplaces: platforms that simply do not pay creator fees.

Attempts to Enforce Royalties

Creators and developers responded with designs that make royalties harder to skip.

1. 1Transfer restrictions. The NFT contract only allows transfers through approved marketplaces or contracts that pay royalties. Some creators used marketplace-maintained block lists for this, and some newer token standards build the restriction into the contract.
2. 2Programmable NFTs. On Solana, the Metaplex ecosystem introduced programmable NFTs that can enforce rules, including royalties, on transfers.
3. 3Off-chain incentives. Some projects reward holders who paid royalties, for example with access, allowlist spots or community perks.

Each approach has trade-offs. Transfer restrictions can stop you using a new marketplace or a lending protocol that is not on the approved list, and they give the creator ongoing control over how your NFT can move. That is a reasonable thing for buyers to know before purchasing.

What Royalties Mean for Buyers

If you are buying NFTs, royalties affect you in three practical ways:

• Your resale proceeds. A 10% royalty means a resale has to rise meaningfully just to break even after royalties and fees.
• Your options. If the collection restricts transfers, you may only be able to sell on certain platforms.
• Your tax records. Royalties and fees usually reduce your proceeds, so record them. Our guide to how crypto taxes generally work explains why accurate cost and proceeds matter; rules differ by country.

Before buying, look at the listing details or the collection page on the marketplace for the royalty rate, and check whether the contract has transfer restrictions.

What Royalties Mean for Creators

For creators, the lesson of recent years is to treat royalties as a possible bonus rather than a guaranteed salary. Practical approaches include:

• Pricing the initial sale (the "primary sale") to cover costs without relying on resales.
• Choosing a marketplace and token design that fits how much control you want over secondary trading.
• Being transparent with collectors about royalty rates and any transfer restrictions.
• Building value through utility or community rather than promising resale income.

Royalty-Related Scams to Watch For

Royalties are sometimes used as cover for theft. Common patterns:

• "Pay the royalty to unlock your NFT." No legitimate system requires you to pay a fee to move an NFT you already own.
• Fake royalty-claim sites. Messages saying you have unclaimed creator royalties and must connect your wallet are typically wallet drainers.
• Counterfeit collections. Copies of popular collections may advertise low or zero royalties to look like a bargain. See fake NFT mints and counterfeit collections for how to check.

If you are new to the asset class, start with what an NFT is and how NFT marketplaces work.

Bottom line

NFT royalties are a creator's share of resales, but on most chains they depend on marketplaces choosing to pay them. Buyers should check the rate and any transfer restrictions before purchasing, and creators should plan as if royalties may not be paid. Never pay a "royalty" or "unlock fee" to someone who contacts you — that is almost always a scam.