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How NFT royalties work: Designs, challenges, and new ideas - a16z crypto

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Automatically enforced royalties on secondary sales have always been an important value proposition for NFTs. In an ideal world, creators could set royalties onchain that would be paid automatically whenever their work is sold anywhere on the internet, and without relying on marketplaces and other third parties to honor royalties out of goodwill. However, NFT royalties were never actually enforced onchain; this has always been misunderstood. The demand for enforced onchain royalties outpaced progress toward making them a reality. The challenge is that it’s difficult to distinguish between the NFT transfers that are sales that should pay a royalty and other types of transfers, such as self-transfers between a user’s own wallets, sending an NFT as a gift, and so forth. Newer royalty designs attempt to address this challenge by identifying different types of transfers and enforcing royalties when appropriate — but these mechanisms come with a significant tradeoff between strict royalty en

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