Crypto Gloss

Secondary Royalties

Secondary royalties are the percentage of each secondary market sale automatically routed to the original creator or rights holder of an NFT, paid by the buyer or deducted from the seller’s proceeds at the point of transaction. They are designed to give creators ongoing income from their work beyond the initial mint, compensating them as their work appreciates in the secondary market.

How They Work in Practice

When an NFT sells on a secondary market, the marketplace calculates the royalty amount (typically a percentage of the sale price), deducts it from the transaction, and routes it to the creator’s wallet before settling the remaining proceeds to the seller. A 5% royalty on a 10 ETH sale routes 0.5 ETH to the creator.

The discovery mechanism — how the marketplace knows what percentage to collect and where to send it — is handled by ERC-2981, the Ethereum NFT royalty standard. The creator’s contract implements a royaltyInfo function that returns the recipient address and the royalty amount for any given sale price. Marketplaces that support ERC-2981 query this function and handle the routing automatically.

Rates in Practice

Secondary royalty rates across the NFT market have ranged from 0% to 10%, with 5–7.5% being most common during the 2021–2022 peak. By 2023, market pressure from fee-competitive platforms pushed effective rates lower, with many collections reducing rates to 2.5% or eliminating them to stay competitive on platforms that made royalties optional.

The Enforcement Problem

Secondary royalties are voluntary at the protocol level. ERC-2981 tells marketplaces what the creator wants — it does not compel payment. A marketplace can ignore the royalty signal and route 100% of proceeds to the seller. This distinction between royalty signaling and royalty enforcement became a central controversy in the NFT market in 2022–2023.

History

2017–2020 — Manual royalty splits. Early NFT projects on Foundation, SuperRare, and Nifty Gateway included platform-enforced royalties as a product feature — but these were marketplace policies, not on-chain standards.

2020 — ERC-2981 proposed. A minimal royalty signaling standard was proposed to let any marketplace query royalty terms directly from the NFT contract, without needing project-specific integrations.

2021 — Royalties normalized at 5–10%. During the NFT bull market, most major collections set secondary royalties at 5–10%, and platforms like OpenSea enforced them as platform policy. Creators earned millions in secondary sales during this period.

2022 — Blur launches with optional royalties. The marketplace aggregator Blur launched with royalties set as optional for traders, enabling lower fees and capturing significant market share from OpenSea. The “royalty wars” began, with platforms competing for volume by reducing creator fees.

2023 — OpenSea drops enforcement. OpenSea removed mandatory royalty enforcement to compete with Blur, effectively ending the era of universally enforced secondary royalties on the largest Ethereum NFT platforms. Many creators reduced their rates or removed them entirely.

Common Misconceptions

“Secondary royalties are guaranteed by smart contracts.” Only on contracts that enforce royalties by blocking non-royalty-paying transfers — a design that significantly reduces liquidity and is used by relatively few projects. Most royalties rely on marketplace compliance, not technical enforcement.

“Royalties are paid by the buyer.” Technically, royalties are deducted from the total transaction and reduce what the seller receives (or the buyer pays, depending on the marketplace’s pricing model). In most implementations, the seller bears the royalty cost.

“Low royalties mean the creator doesn’t care about the community.” Many creators reduced royalties to stay competitive on platforms where royalties were optional, not because they wanted to. Lower royalties can mean the collection appears in more marketplaces and generates more trading volume.

Criticisms

  • No technical enforcement without tradeoffs: Enforcing royalties at the contract level requires restricting which addresses can call transfer — reducing composability and liquidity in ways that conflict with the open nature of on-chain trading.
  • Market drove fees to near zero: Platform competition effectively collapsed secondary royalty rates across major collections in 2023, demonstrating that voluntary systems cannot hold without market coordination.
  • Unequal impact by collection size: Large collections with strong communities could pressure marketplaces to maintain royalties. Smaller creators had no such leverage and lost secondary income entirely when enforcement became optional.
  • Wash trading inflates royalty appearance: Platforms that reported high royalty volumes during the bull market were later found to have significant wash trading activity, meaning the royalty numbers overstated what legitimate creators earned.

Social Media Sentiment

  • r/NFT: Deeply divided. Creator-aligned users view secondary royalties as the economic foundation of NFT culture; traders and collectors frequently argue that royalties unfairly penalize buyers and reduce market efficiency.
  • r/CryptoCurrency: Largely opposed to mandatory royalties, which are described as a tax on transactions enforced by centralized platform policy rather than decentralized protocol logic.
  • X/Twitter: High-volume debate during 2022–2023 royalty wars. Creator advocates (#royaltiesarenonnegotiable) clashed with traders and marketplace supporters. The debate has quieted as optional royalties have become the norm.
  • Discord: Individual project communities use Discord to signal which marketplaces they endorse based on royalty compliance, sometimes directing holder trading toward compliant platforms as a community norm.

Last updated: 2026-04

Related Terms

  • Creator Royalties — the broader category of on-chain creator payments that secondary royalties are a part of.
  • ERC-2981 — the Ethereum standard that defines how NFT contracts signal royalty recipient and rate to marketplaces.
  • Royalty Enforcement — the mechanisms that attempt to compel marketplace compliance with royalty terms.
  • Royalty Bypass — the techniques used to route trades around royalty-collecting contracts or platform policies.

See Also

Sources