A Creator's Guide to NFT Royalties

For digital artists and creators, the promise of automatic, on-chain royalties was one of the most revolutionary aspects of NFTs. For decades, visual artists have rarely benefited from the secondary market. A painter could sell a canvas for $1,000, only to watch a collector resell it for $1 million years later, with the artist receiving nothing from that appreciated value. NFTs, powered by smart contracts, seemed to offer a solution: the ability to code a royalty fee directly into the token, ensuring the original creator receives a percentage of every future sale, forever.

This powerful concept was a key driver of the 2021 NFT boom, empowering a new generation of creators to build sustainable careers. However, the reality of NFT royalties has proven to be far more complex and contentious than originally envisioned. The debate around royalty enforcement has pitted artists against marketplaces and collectors, raising fundamental questions about decentralization, creator compensation, and the very nature of digital ownership.

This guide will provide a deep dive into the world of NFT artist royalties. We'll cover how they are supposed to work, the technical standards that enable them, why they have become a point of conflict, and the current state of the ecosystem. Whether you're an artist looking to launch a collection or a collector wanting to support creators, understanding the nuances of NFT royalties is essential.

How NFT Royalties are Supposed to Work

The core idea is simple and elegant. When an artist mints an NFT, the smart contract that governs the token includes a specific piece of logic.

The Royalty Standard: The contract specifies a royalty percentage (e.g., 5%) and the address of the creator's wallet that should receive the funds.
Marketplace Integration: When the NFT is sold on a secondary marketplace (like OpenSea or Blur), the marketplace's smart contract is supposed to read the royalty information from the NFT's contract.
Automatic Payout: After the sale is complete, the marketplace's contract automatically splits the payment, sending the majority (e.g., 95%) to the seller and the royalty fee (5%) directly to the creator's wallet.

This process, in theory, is seamless, transparent, and unstoppable, all enforced by the impartial logic of the code. It removes the need for trusted intermediaries and ensures creators are compensated for the long-term value they create.

The Technical Standard: EIP-2981

To make royalties work across the ecosystem, a common standard was needed. This came in the form of EIP-2981: NFT Royalty Standard. An EIP (Ethereum Improvement Proposal) is a design document that proposes a new feature or process for the Ethereum ecosystem.

EIP-2981 introduced a simple, universal function that any NFT contract can implement:

function royaltyInfo(uint256 _tokenId, uint256 _salePrice) external view returns (address receiver, uint256 royaltyAmount);

Let's break this down:

Any marketplace can call this royaltyInfo function on an NFT contract.
They pass in the ID of the specific token being sold (_tokenId) and the price it sold for (_salePrice).
The function returns two values:
- receiver: The Ethereum address where the royalty payment should be sent.
- royaltyAmount: The exact amount of the royalty fee to be paid.

This standard was a major step forward. It created a reliable way for any marketplace to discover and calculate the correct royalty for any NFT that implemented the standard, without needing custom integrations for every single project.

The Problem: Royalties are Not Enforceable On-Chain

Here we arrive at the core of the conflict. The EIP-2981 standard, and other similar methods, are voluntary. There is nothing in the core ERC-721 NFT standard that forces the transfer of royalty fees.

Think of it like this: The NFT contract can have a sign that says, "Please pay the artist 5%." However, it has no power to force the buyer or seller to actually make that payment. The enforcement of royalties is entirely up to the marketplace where the sale takes place.

This wasn't a major issue during the bull market of 2021. Major marketplaces like OpenSea, SuperRare, and Foundation all chose to honor the EIP-2981 standard. They built their platforms around a creator-centric model, and honoring royalties was a key part of that.

The Rise of Zero-Royalty Marketplaces

The situation changed dramatically in 2022 as the market cooled and competition between marketplaces intensified. New platforms emerged that saw an opportunity to gain market share by offering lower fees to traders. The easiest fee to cut was the artist's royalty.

The Argument for Optional Royalties: Proponents of this model argue that forcing royalty payments is against the Web3 ethos of true ownership. If you truly own an asset, you should be able to sell it to whomever you want, on whatever terms you want, without a third party (the artist) imposing a fee. They view royalties as a tax, not an inherent property of the asset.
The Market Response: Marketplaces like SudoSwap and X2Y2 introduced configurations that made royalties optional or zero by default. The most significant shift came when Blur, a marketplace aimed at professional traders, launched with an optional royalty model that strongly incentivized traders to pay the lowest fees possible.

This created a "race to the bottom." As traders flocked to zero-royalty platforms to maximize their profits, creator royalty revenue plummeted across the board. OpenSea, which had long been the champion of creator royalties, was forced to introduce its own optional royalty tools to compete, further cementing the new market dynamic.

The Current State of NFT Royalties

Today, the NFT ecosystem is fragmented. There is no single, universally accepted approach to royalties. However, several solutions and models have emerged.

Voluntary (The Dominant Model)

How it Works: Marketplaces allow collectors to choose whether or not to pay the creator's suggested royalty.
Pros: Upholds "true ownership" principle; lower fees for traders.
Cons: Devastating for creator income; unreliable.

Allowlist Enforcement

How it Works: The NFT contract includes code that only allows the token to be transferred through marketplaces that are on an "allowlist" of royalty-honoring platforms.
Pros: Gives creators more control; can effectively enforce royalties.
Cons: Criticized as being anti-decentralization; requires ongoing maintenance of the allowlist.

Community and Brand

How it Works: Creators build a strong community and brand, making collectors want to pay royalties to support the artist and maintain their status within the community.
Pros: Aligns incentives; builds long-term value.
Cons: Difficult to achieve; relies on social pressure, not code.

Evolving Standards

How it Works: New token standards are being proposed that attempt to bake royalty enforcement more deeply into the token's logic.
Pros: Could provide a more robust technical solution.
Cons: Requires widespread adoption by wallets and marketplaces to be effective.

What Can Creators Do?

If you are an artist or creator planning an NFT launch, the old "set it and forget it" approach to royalties is no longer viable. You need a proactive strategy.

Implement EIP-2981: This is still the foundational first step. It is the clearest way to signal your desired royalty structure.
Choose Your Marketplace Strategy: Decide if you want to use a contract that enforces an allowlist. Be aware of the pros and cons of this approach and how it might be perceived by the community.
Build a Strong Community: This is the most effective tool you have. Cultivate a community of true fans who believe in your work and want to support you long-term. A strong community can exert social pressure on collectors to honor royalties.
Provide Utility: Give your NFT holders value beyond the art itself. This could be access to exclusive content, a private Discord, or future airdrops. When the NFT has ongoing utility, collectors are more incentivized to keep the creator's ecosystem healthy.
Educate Your Collectors: Be transparent about your royalty policy. Explain why it's important for your sustainability as a creator.

The debate over NFT royalties is far from over. It represents a fundamental growing pain of the Web3 ecosystem as it grapples with balancing the ideals of absolute ownership with the need for sustainable creator economies. While the initial, utopian vision of automatically enforced royalties has been challenged, the conversation has forced a more mature and nuanced approach. For creators, the path forward lies in a combination of technical standards, community building, and clear communication.