Articles on: Creator Guide

What is on-chain royalty? In which cases the creator will not receive the royalty?

Royalty is the way for creators to be rewarded in the secondary market sale. If you have set for, e.g., 10% royalties in a collection while creating it & set the royalty wallet, you will be rewarded 10% of the sale proceed in every trade in the secondary market in your mentioned royalty wallet.

NFTICALLY started supporting on-chain royalties as per EIP-2891 from Dec 10, 2021.

What does on-chain royalty mean?

On-chain royalty means that your royalty percentage & the wallet information will be attached to the collection itself as per EIP-2891. Hence the word on-chain because your royalty information will exist in the Blockchain itself.

How does on-chain royalty helps?

Before the on-chain royalty became a thing, the royalty information generally lived inside the marketplaces where the NFTs were being sold. This situation used to become a big problem in the secondary market because when the NFT buyer moves out their NFTs from the existing Marketplace (from where he bought the NFT) to any other NFT marketplace, the royalty information does not traverse along with the NFTs. This used to create a significant financial loss to the creators because they do not get the royalty once the buyer moves NFTs out from their Marketplace.

The below conversation between Creator & the Marketplace summarises the problem. (Taken from EIP-2891)

Artist: “Do you support royalty payments on your platform?”
Marketplace: “Yes, we have royalty payments, but if your NFT is sold on another marketplace, then we cannot enforce this payment.”
Artist: “What about other marketplaces that support royalties? Don’t you share my royalty information to make this work?”
Marketplace: “No, we do not share royalty information.”

The above problem was solved by on-chain royalty. In this case, the royalty information (percentage & the royalty wallet address) always remains within the collection.

Are there any scenarios where I, as a creator, will still not get my royalty in the secondary market, even after on-chain royalty?

Yes. We can think of two scenarios where you will still not get your royalty even after the ERC721 & ERC1155 collection has the royalty information inside it.

The first scenario is when the Marketplace does not support or honor the on-chain royalty.
As per EIP-2891, honoring the royalty information available inside the collection is the responsibility of the Marketplace where the buyer has taken its NFTs. This may happen for quite a few reasons like the platform does not support on-chain royalty or decided not to honor it, or there is an error/bug in the Marketplace while trying to fetch the royalty information from the Blockchain. Now a days most of big NFT Marketplaces like OpenSea, Rarible support on-chain royalty.

In the above case, the creator will not get the royalty from the secondary market sale.

The second scenario is when the NFT transfer happens without involving any NFT Marketplace. For example, if there is a peer-to-peer transfer of NFT from a buyer’s wallet to another user wallet.

For all collections (ERC721 & ERC1155) created on any NFTICALLY powered Marketplace or Store, even after supporting on-chain royalties, we do not guarantee royalty to be paid 100% of the time in secondary market sales due to the reasons mentioned earlier.

Updated on: 11/04/2022

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