Resale Royalty in Non-Fungible Token Marketplaces: Blessing or Burden for Creators and Platforms?

Resale royalties, first introduced in the 1920s to support artists through a share of future resales, have now adopted by nonfungible token (NFT) marketplaces for digital art trading. Although these royalties are often viewed as beneficial for creators, our research reveals unexpected consequences. Using data from a major NFT marketplace, we find that NFTs with higher royalty rates sell for significantly lower prices and take longer to sell. Surprisingly, creators do not recoup these initial losses through royalty payments within four years. We discover that higher up-front minting costs lead creators to set higher royalty rates. We reveal a delayed gratification effect where creators with higher royalties accept lower up-front prices in hopes of future royalty income. We also find an overconfidence effect where confident creators, measured by their past sales and follower count, are more likely to lower initial prices. Our research contributes to the ongoing debate about royalty enforcement in NFT marketplaces and offers empirical evidence to inform platforms and creators. Platform managers should carefully consider both reducing up-front minting costs and implementing royalty rate limits to improve market liquidity. Creators should be cautious about setting high royalty rates as they may not provide the expected financial benefits. Non-fungible token (NFT) marketplaces enable users to mint and trade digital assets, such as collectibles, trading cards, and digital artwork. Many of these platforms accommodate resale royalties, which return a predetermined percentage of the proceeds from future resales of the digital asset to the creator. Although the adoption of resale royalties may seem beneficial for NFT creators by providing a recurring source of income, it could have unintended consequences on the sales price and the liquidity of the underlying NFT, potentially affecting both the platform’s commission revenue and the creator’s short-term return. In this paper, we aim to understand the antecedents and consequences of resale royalties. Specifically, we empirically investigate the impact of minting costs on royalty rates and subsequently, the effects of resale royalties on primary market sales prices and liquidity. Our identification strategy combines a difference-in-differences model that leverages a policy change that eliminated up-front minting fees for creators and an instrumental variables approach. We find that NFT creators reduce royalty rates when