NFT royalties actually work—but only if markets aren't perfect

Economists tested whether NFT creator royalties survive in real markets where speculators dominate—they do, but only because real markets have friction, incomplete information, and complex conditions. This means platforms can't ignore royalty mechanisms as economically irrelevant; they actually shift how much trading happens and who benefits.

For years, critics assumed sophisticated traders would simply price royalties in upfront, making them useless—a clean economic argument that would've let platforms argue royalties cost them volume with no creator benefit. This paper shows that intuition only holds in textbook perfect markets. In reality, royalties create three separate mechanisms that let creators capture value: they can share risk with speculators, exploit information gaps, and charge different prices depending on who's buying. The practical effect is that platforms can't just dismiss royalties as economically neutral anymore—they genuinely affect both creator earnings and trading volume.