What are NFT Royalties?
NFT royalties are recurring payments to the original creator each time their NFT changes hands on the secondary market. Unlike traditional art, where artists only profit from the initial sale, NFT royalties enable creators to earn from every subsequent resale — forever.
When a collection sets a 5% royalty, every secondary sale automatically sends 5% of the sale price to the creator’s wallet. A Bored Ape resold for 100 ETH sends 5 ETH to Yuga Labs.
Royalties represented a paradigm shift for digital creators: for the first time, artists could capture upside from the appreciation of their work over time, not just the first sale.
How NFT Royalties Work
The ERC-2981 Standard
ERC-2981 (EIP-2981) is the Ethereum standard for NFT royalty information. Introduced in 2021, it allows smart contracts to declare:
- Royalty recipient: The wallet address that receives payments
- Royalty amount: A percentage (in basis points) of the sale price
A royalty of 5% = 500 basis points. The standard’s royaltyInfo() function returns who gets paid and how much.
Critical limitation: ERC-2981 is informational only. It does not enforce payment — it merely tells marketplaces what the creator requests. Enforcement is up to each marketplace.
Marketplace Enforcement
| Marketplace | Royalty Enforcement | Default Rate |
|---|---|---|
| OpenSea | Optional (creator choice since Feb 2023) | Previously enforced 2.5-10% |
| Blur | Optional (minimum 0.5%) | 0.5% |
| Magic Eden | Enforced on Solana, optional on ETH | 5-10% |
| X2Y2 | Optional | 5% |
| LooksRare | Optional | 2% |
How Payments Actually Flow
- Buyer purchases NFT for 10 ETH on a marketplace
- Marketplace deducts 5% royalty (0.5 ETH) from the sale
- Marketplace sends 9.5 ETH to the seller
- Marketplace sends 0.5 ETH to the creator’s wallet
- NFT transfers to the buyer
This only works if the marketplace cooperates. If you sell the same NFT via a direct peer-to-peer transfer or on a zero-royalty marketplace, the creator gets nothing.
The Royalty Wars (2022-2023)
What Happened
In October 2022, Blur launched with zero-royalty trading as a competitive strategy. Traders flocked to Blur for lower costs, forcing OpenSea to respond. By February 2023, OpenSea made royalties optional, letting creators choose between enforcing royalties or enabling Blur trading.
Impact on Creators
The royalty wars devastated creator revenue:
- Average effective royalty rate dropped from 5% to 0.6% (Dune Analytics, 2023)
- Many creators saw 80-90% revenue drops overnight
- Collections that relied on royalties for ongoing development (games, metaverse projects) were hit hardest
Responses
- Creator boycotts: Major collections (including Yuga Labs) threatened to block zero-royalty marketplaces
- On-chain enforcement: New NFT standards (like ERC-721C / Creator Tokens by LimitBreak) allow creators to embed royalty logic directly in the token contract, making bypassing impossible at the contract level
- Manifold’s Royalty Registry: A registry that marketplaces can check to enforce creator-set rates
- OpenSea Operator Filter Registry: Lets creators block zero-royalty marketplaces from their collections
Typical Royalty Rates
| Collection Type | Typical Royalty | Notes |
|---|---|---|
| Blue-chip PFP (BAYC, Azuki) | 2.5-5% | Often reduced over time |
| Art blocks / generative | 5-10% | Artists rely heavily on royalties |
| Gaming NFTs | 5-7.5% | Funds ongoing game development |
| Music NFTs | 10% | Higher because music sales are smaller volume |
| Free mints | 5-10% | No upfront revenue, royalties are primary income |
How to Check a Collection’s Royalty
- On OpenSea: Listed on the collection page under “Creator Earnings”
- On-chain: Call the ERC-2981
royaltyInfo()function on the contract - Using tools: Reservoir, NFTGo, and iota provide royalty analytics
Frequently Asked Questions
Q: Can creators change their royalty rate after minting? A: Yes, if the smart contract allows it. Many contracts include a function for the creator to adjust the rate. However, marketplaces may cache the old rate.
Q: Do royalties apply to all transfers, or just sales? A: Only sales through marketplaces. If you transfer your NFT to another wallet you own (e.g., to a cold wallet), no royalty is triggered.
Q: Are NFT royalties taxable income? A: In most jurisdictions, yes. Royalties are typically classified as ordinary income. Consult a tax professional.