Home/Blockchain/Royalties Demo/How It Works

🔄 How Royalties Work: Automatic Payments

Understand smart contract royalty distribution on each sale

Understand how creators earn from secondary sales

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⚙️ Payment Flow Mechanics

NFT royalties aren't magic—they're implemented through smart contracts and marketplace cooperation. Understanding the technical flow helps you appreciate both the power and limitations of royalty systems.

📝

On-Chain Data

Royalty info stored in NFT smart contract

🏪

Marketplace Query

Platform reads royalty percentage and recipient

💸

Payment Split

Sale proceeds divided among parties

🧮 Interactive: Royalty Calculator

Adjust the sale price and royalty percentage to see exactly how payments are distributed.

10%
0%10%20%
Creator Receives
0.250 ETH
10% of sale
Marketplace Fee
0.063 ETH
2.5% platform fee
Seller Receives
2.188 ETH
87.5% of sale
Payment Distribution Visualization
10%
2.5%
88%

🔄 Step-by-Step: What Happens on Sale

1
Buyer commits funds
Buyer sends full sale price to marketplace contract
2
Contract queries royalty
Marketplace calls royaltyInfo(tokenId, salePrice) on NFT contract
3
Royalty payment sent
Creator address receives royalty percentage automatically
4
Platform fee deducted
Marketplace takes service fee (typically 2-2.5%)
5
Seller receives balance
Original owner gets remaining proceeds
6
NFT transferred
Ownership updated to buyer's wallet

✅ On-Chain Royalties

  • •Transparent: Anyone can verify royalty terms
  • •Standard: EIP-2981 works across all platforms
  • •Immutable: Terms can't be changed without upgrade
  • •Portable: Follows NFT to any marketplace

⚠️ The Enforcement Gap

  • •Not automatically enforced—requires marketplace cooperation
  • •P2P transfers bypass royalties entirely
  • •Some platforms choose to ignore royalty data
  • •No protocol-level enforcement mechanism exists

💡 Key Insight

The "enforcement gap" is crucial to understand: while smart contracts can store royalty information, they cannot force marketplaces to honor it. This is because most NFT sales happen through marketplace contracts, not the NFT contract itself. The NFT contract can say "10% royalty please," but if the marketplace contract ignores that request, there's no technical way to stop the transfer.

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