Introduction
NFTs were once hailed as the future of digital ownership—empowering creators to monetize their work beyond the initial sale. A core part of that promise was NFT royalties: automatic payments to artists every time their work resold on secondary markets.
But in recent years, this promise has come under fire. Marketplaces are removing or bypassing royalties, investors are pushing back against high fees, and creators are questioning whether royalties are truly enforceable on-chain. The debate highlights a deeper economic and technical tension: can royalties be sustained in an open blockchain economy, or are they destined to erode?
What Are NFT Royalties?
NFT royalties are programmed payments that ensure creators earn a percentage each time their NFT is resold. For example, if an artist sets a 5% royalty on an NFT that later sells for $10,000, they automatically receive $500.
Royalties were designed to:
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Reward creators fairly for ongoing value generation.
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Align incentives between artists, collectors, and platforms.
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Encourage long-term community growth around collections.
Initially, NFT royalties were a breakthrough. Artists who once earned only from the first sale of their work could now benefit from its rising value. But reality has proven more complex.
Why NFT Royalties Are Under Siege
1. Marketplace Competition
In 2022–2023, several major NFT marketplaces—such as Blur and OpenSea—entered a race to attract traders. To win market share, they reduced or removed royalties, framing them as optional. Traders flocked to zero-royalty platforms, forcing others to follow suit.
2. Technical Limitations
While royalties can be programmed into smart contracts, enforcement is tricky. On open blockchains, buyers and sellers can bypass marketplaces entirely using peer-to-peer transfers. Unless platforms cooperate, royalties are easy to avoid.
3. Investor Resistance
Some traders argue that royalties act like a “tax” on liquidity. They prefer lower fees to maximize profits, especially in a volatile market where margins are slim.
4. Creator Reliance on Royalties
Many NFT projects built business models around continuous royalty revenue. With enforcement weakening, creators face declining income, forcing them to rethink sustainability.
The Economics of Royalties
Royalties in NFTs expose a fundamental tension between creator income and market efficiency:
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For creators: Royalties provide recurring revenue, helping them reinvest in communities and future projects.
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For traders: Royalties reduce profitability and create friction in secondary markets.
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For marketplaces: Enforcing royalties risks losing users to competitors that allow zero-fee trading.
Economically, royalties resemble a public goods problem. If everyone pays, the ecosystem thrives. But if participants avoid paying, the system collapses.
Are Royalties Truly Enforceable?
Enforcing royalties on decentralized blockchains is complex:
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Smart Contract Enforcement: Some NFTs lock transfers unless royalties are paid. However, this limits interoperability and may harm adoption.
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Marketplace-Level Enforcement: Platforms can enforce royalties on trades but cannot stop off-chain agreements or peer-to-peer swaps.
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Hybrid Approaches: New protocols attempt partial enforcement—such as blocking wallets that bypass royalties—but these are controversial and not foolproof.
Ultimately, enforceability depends less on code and more on market consensus. If traders and marketplaces agree that royalties matter, they can be sustained. If not, they weaken over time.
Alternative Models Emerging
As royalties decline, creators are exploring new revenue models:
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Upfront Pricing – Charging higher mint prices to compensate for lost royalties.
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Subscription Models – Offering ongoing content or perks in exchange for membership fees.
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Utility-Driven NFTs – Embedding value through access to events, exclusive drops, or community governance.
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Revenue Sharing – Tying NFTs to real-world or DeFi revenue streams (e.g., staking rewards, merchandise sales).
These approaches shift NFT economics from passive royalties to active value creation.
Market Growth and the Road Ahead
Despite declining royalties, the NFT market continues to grow in volume and innovation. According to industry reports, while creator royalty income has dropped by over 70% since 2022, new forms of monetization are emerging.
Looking ahead, the future of royalties may depend on:
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Protocol-level standards: If blockchains adopt built-in royalty enforcement, compliance could improve.
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Cultural shifts: Strong creator communities may pressure collectors to honor royalties voluntarily.
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Hybrid financial models: Mixing royalties with DeFi tools and real-world assets could sustain long-term ecosystems.
Conclusion
NFT royalties, once considered a cornerstone of Web3 creator empowerment, are now at a crossroads. While they provided a powerful mechanism for recurring income, the realities of open markets, technical bypasses, and economic pressures have undermined enforceability.
This does not spell the end for creator income—it marks a transition. The NFT ecosystem is moving toward alternative monetization models and community-driven economics. Whether royalties survive or fade, the debate highlights a deeper truth: NFTs are not just about ownership—they’re about how value is shared between creators, collectors, and platforms.
The economics of enforceability will continue to shape the next phase of NFT innovation.
