NFT royalties were one of the most talked-about features of the NFT boom, promising creators ongoing income every time their work resold. The reality today is more complicated, and understanding how royalties actually work matters for both creators and collectors.
What Are NFT Royalties?
An NFT royalty is a percentage of the resale price that automatically goes back to the original creator whenever the NFT changes hands on the secondary market, in addition to whatever the creator earned on the initial sale. This was pitched as solving a long-standing problem in the traditional art world, where artists typically see none of the value when their work resells for much higher prices later.
How Royalties Are Technically Enforced
Royalties are not a native feature of the NFT standard itself; they are typically enforced at the marketplace level through smart contract logic that the marketplace chooses to honour. This distinction matters enormously, because it means royalty enforcement can be, and often has been, bypassed.
Why Royalty Enforcement Broke Down
Starting around 2022 and 2023, several major NFT marketplaces made royalties optional rather than mandatory, partly under competitive pressure as traders moved to platforms with lower or zero enforced fees. This significantly reduced actual royalty income for many creators, even on collections where the original smart contract specified a royalty percentage.
Newer Approaches to Enforcement
In response, some creators and platforms have moved toward on-chain enforcement mechanisms that make royalty payment a technical requirement of the transfer itself, rather than something a marketplace can simply choose to skip. These approaches are more robust but are not universally adopted across the NFT ecosystem.
What This Means for Creators
If you are minting NFTs as a creator, research whether the specific platform and standard you use actually enforces royalties on-chain, rather than assuming a percentage set at minting will reliably be paid. Diversifying income beyond resale royalties, such as through primary sales and direct commissions, remains the more reliable strategy.
What This Means for Collectors
If you are buying NFTs, understand that a listed “royalty percentage” may or may not actually be deducted depending on where you trade, which affects the true cost of a transaction. This is worth checking before assuming your total cost, particularly for larger trades.
Frequently Asked Questions
Are NFT royalties guaranteed?
No. Whether a royalty is actually paid depends on the marketplace and the specific enforcement mechanism used by that NFT collection, not simply on a percentage stated at minting.
Do royalties apply to every NFT resale?
Only if the marketplace being used chooses to enforce them, and only for collections where a royalty was set at the smart contract level in the first place.
Do I pay UK tax on NFT royalty income?
Royalty income received by a creator is generally treated as income for tax purposes, separate from any capital gains treatment on the sale of the underlying NFT itself. This is general information, not personalised tax advice, so check current HMRC guidance for your specific situation.
This article is for general information only and is not financial advice. NFT markets and royalty enforcement mechanisms continue to change, so verify current terms directly with any platform before relying on them.
