NFT Royalties Explained: How Creators Get Paid on Resales

NFT royalties are a percentage of a resale price that's meant to be paid automatically to the original creator every time an NFT changes hands, a mechanism that doesn't exist in traditional secondary art markets and was originally one of the more celebrated features of NFT technology.

The idea is straightforward: an artist sells an NFT once, but if that piece later resells for a much higher price, the creator continues to benefit from a percentage of every future sale — not just the initial one. In practice, how reliably that actually happens has become considerably more complicated than the original pitch suggested.

How royalties are technically implemented

Royalty logic is generally written into the NFT's smart contract as a standard field (commonly following an informal convention, since Ethereum's core NFT standards like ERC-721 don't natively enforce royalty payments themselves). The contract specifies a royalty percentage and a payout address, and marketplaces that choose to honor this field automatically route that percentage to the creator whenever a sale completes through their platform.

The key phrase there is "marketplaces that choose to honor" — because royalty payment isn't enforced by the underlying blockchain protocol itself, it depends entirely on the marketplace facilitating the trade actually respecting and paying out the contract's stated royalty field.

Why marketplaces made royalties optional

Starting around 2022–2023, competitive pressure among NFT marketplaces led several major platforms to make royalty payments optional for buyers and sellers, or to enforce them only on their own platform while trades executed through other channels bypassed them entirely. The logic from a marketplace's perspective: a platform that doesn't require royalty payment can offer a lower effective cost to traders, attracting more volume — a race to the bottom that many creators have criticized as undermining the core value proposition of on-chain royalties.

This has led to enforcement approaches that fall into a few categories:

• On-chain enforced royalties: some newer contract designs block transfers entirely unless the royalty payment condition is met, technically enforcing payment regardless of which marketplace facilitates the trade.
• Marketplace-optional royalties: the marketplace displays a suggested royalty and lets the buyer or seller choose whether to pay it, often defaulting to a reduced or zero amount.
• Off-chain/legal enforcement: some creators rely on licensing terms or trademark rights outside the blockchain itself to pressure compliance, since technical enforcement isn't guaranteed.

Royalty enforcement approaches compared

Approach	Guarantees payment	Trade-off
On-chain enforced transfer restriction	Yes, by contract design	Can reduce liquidity/compatibility with marketplaces that don't support the restriction
Marketplace-optional royalty	No — buyer/seller can choose to skip it	Maximizes trading flexibility, minimizes creator guarantee
Off-chain/legal enforcement	No, requires legal action	Slow, costly, jurisdiction-dependent

What this means for creators and collectors

For creators, this has meant royalty income has become considerably less reliable than originally advertised in the NFT space's early years — a project's contract might specify a 5% royalty, but if the primary marketplace where it trades makes that optional, actual payments may be a fraction of what the contract nominally states. Creators evaluating platforms should check current royalty enforcement policy directly rather than assuming the contract's stated percentage will actually be paid.

For collectors, understanding a marketplace's royalty policy matters for cost transparency — a listed price on one platform may carry a mandatory royalty add-on, while the "same" trade elsewhere might not, depending on that platform's current policy.

How creators can protect royalty income today

Given the uneven enforcement landscape, creators considering royalties as a meaningful revenue stream have a few practical options to weigh:

1. Choose contract designs with on-chain enforcement if available for the intended chain and marketplace ecosystem, understanding this may trade off some compatibility with marketplaces that don't support the restriction mechanism.
2. Diversify revenue beyond royalties alone, since relying entirely on secondary sale royalties as a primary income model has become considerably riskier than it once appeared.
3. Communicate royalty policy clearly to collectors upfront, since informed buyers may factor royalty-supportive behavior into their platform choice when multiple options exist for trading the same collection.
4. Monitor which marketplaces the collection actually trades on and understand each one's specific current royalty policy, since this can change over time as platforms adjust their competitive strategy.

What this history illustrates more broadly

The evolution of NFT royalty enforcement is a useful case study in a recurring theme across blockchain systems generally: a feature written into a smart contract is only as enforceable in practice as the surrounding ecosystem chooses to make it, unless the enforcement mechanism itself is built directly and inescapably into the transfer logic. This same principle — that intended behavior and actually-enforced behavior can diverge significantly depending on how a system is built and who controls the surrounding infrastructure — comes up in other DeFi contexts as well, and is worth keeping in mind whenever evaluating a project's stated mechanics against what's technically guaranteed.

Bottom line

NFT royalties were designed to give creators an ongoing share of resale value, but because enforcement isn't built into the base blockchain protocol, actual payment depends heavily on marketplace policy — and many major marketplaces have made royalties optional in response to competitive pressure. Some newer contract designs enforce payment on-chain regardless of marketplace, but this isn't universal. Anyone evaluating a project's royalty structure should check current enforcement mechanics directly rather than taking a stated percentage at face value. Learn more in our NFT marketplace guide and our NFTs glossary entry.