NFT Royalty Circumvention Issues: How Creators Are Losing Out on Secondary Sales

When you buy an NFT, you’re not just owning a digital image - you’re entering a contract that says, "Every time this NFT is sold again, the original creator gets paid." That’s the promise. But for many artists and developers, that promise is broken - over and over again.

How Royalty Circumvention Works

NFT royalties were supposed to be automatic. A creator sets a 10% royalty when they mint their artwork. Later, someone resells it for $10,000. The system should send $1,000 straight to the artist. But it often doesn’t. Why?

The problem starts with the ERC-721 is the most common NFT token standard on Ethereum, finalized in 2018, that handles ownership transfers but has no built-in royalty enforcement. It lets anyone move an NFT from one wallet to another, sell it on any marketplace, and no one checks if royalties were supposed to be paid. It’s like handing someone a house key and saying, "Every time you rent this out, pay the original owner 10%" - but there’s no law, no camera, no way to track it.

The ERC-2981 is a royalty standard introduced in July 2021 that allows NFTs to declare royalty percentages and recipients in their metadata, but it’s optional and ignored by many platforms was created to fix this. It lets creators embed royalty info directly into the token. But here’s the catch: marketplaces don’t have to follow it. If a platform like Blur decides to ignore ERC-2981, the royalty simply vanishes.

The most common trick? Wrapping. A trader takes an NFT with a 5% royalty and puts it inside another smart contract - like putting a document in a sealed envelope labeled "This doesn’t count." The new wrapper uses the basic ERC-721 standard, which has no royalty rules. When the wrapped NFT is sold, the marketplace sees only the wrapper and thinks, "No royalties here." The original creator gets nothing.

Even when buyers use platforms that claim to honor royalties, they can bypass them. Some buyers and sellers arrange private deals: the buyer lists the NFT for $0.01 on the marketplace (to make the transaction look valid), then pays the seller $10,000 in ETH through a separate wallet or peer-to-peer channel. The marketplace records a sale, but the royalty system never triggers.

Marketplaces Are the Weak Link

OpenSea used to be the main place where royalties were enforced. In 2022, creators earned about $1 billion in royalties across OpenSea and other platforms. But that number is misleading. Experts estimate that less than half of all secondary sales actually paid royalties. The rest? Gone.

Platforms like Blur changed their rules entirely. In late 2022, Blur announced it would not enforce any creator royalties. Why? Because traders - often large investors and bots - flocked to Blur because they could buy and sell without paying creators. Suddenly, Blur became the largest NFT marketplace by volume. The message was clear: if you don’t pay the artist, you get more volume. And volume means profit.

Other platforms followed suit. Some quietly lowered royalty rates. Others made it a user option: "Do you want to pay the creator?" - turning a supposed obligation into a voluntary donation.

This isn’t just about greed. It’s about market power. When a single marketplace controls 70% of trading volume, it can rewrite the rules. Creators have no leverage. They can’t force buyers to use a different platform. And if they lock their NFTs to one marketplace, they lose liquidity - which kills value.

Blocklists vs. Allowlists: The Two Failed Solutions

Creators tried to fight back. Two main strategies emerged: blocklists and allowlists.

A blocklist is a blacklist of marketplaces that don’t pay royalties. If a creator adds Blur to their blocklist, any attempt to transfer their NFT through Blur fails. Sounds smart - until you realize there are hundreds of new marketplaces popping up every month. Each one has a unique smart contract address. Keeping up? Impossible. By the time a creator adds a new rogue platform to the blocklist, it’s already stolen millions in unpaid royalties.

An allowlist is the opposite. Only pre-approved marketplaces can trade the NFT. If you want to sell, you must use one of the five platforms the creator approved. This works - but it breaks the whole point of NFTs. One of the biggest selling points of blockchain is openness. You should be able to sell your NFT anywhere. An allowlist turns NFTs into locked assets, like a physical painting that can only be sold at one auction house.

Both methods reduce composability - the ability for NFTs to interact with other apps, games, wallets, and tools. If your NFT can’t move freely, it’s less valuable. A digital collectible that can’t be used in a game, displayed in a virtual gallery, or traded on a new platform isn’t a NFT - it’s a static image.

ERC721-C: A New Way Forward

The most promising solution so far is ERC721-C is a customizable royalty standard developed by Limit Break that lets creators programmatically control where their NFTs can be traded, blocking zero-fee marketplaces at the contract level. Unlike ERC-721 or ERC-2981, ERC721-C gives creators full control. They can write code into the NFT itself that says: "Only allow sales on Rarible, Foundation, and SuperRare. Block any transaction from Blur, LooksRare, or any unknown marketplace." This isn’t a workaround. It’s enforcement built into the token. If someone tries to sell your NFT on a banned marketplace, the blockchain rejects the transaction outright. No exceptions. No loopholes.

The downside? Adoption. ERC721-C requires everyone - buyers, sellers, wallets, marketplaces - to support it. Right now, most wallets and platforms still only recognize ERC-721. If you mint your art with ERC721-C, you might be locking yourself out of the largest markets. It’s a trade-off: total control, but limited reach.

Hedera, a blockchain network, took a different route. Instead of relying on smart contracts, it built royalty enforcement into the network itself. When you mint an NFT on Hedera, you set a royalty rate. Every time that NFT changes hands - no matter which app or wallet is used - the royalty is automatically deducted and sent to the creator. Even if the NFT is transferred for free (like a gift), a small fallback fee is charged to ensure creators still get something.

This is a game-changer. It removes the need for marketplaces to cooperate. It doesn’t depend on creators to maintain blocklists. It just works.

The Bigger Problem: Trust Is Broken

The real issue isn’t technical. It’s cultural.

When NFTs first exploded, creators believed in the system. They thought blockchain would finally give them fair, lasting income. But now, after years of royalty theft, many artists feel betrayed. Why should they mint on Ethereum if the marketplaces they rely on are actively stealing from them?

Some have left entirely. Others are refusing to mint new collections until enforceable standards become mainstream. A growing number are turning to Hedera, Solana, or other chains that offer built-in royalty protection.

The irony? The same technology that promised freedom - permissionless, open, decentralized - is now the tool that lets buyers and platforms strip creators of their rights. The system designed to protect creators is being weaponized against them.

What Creators Can Do Today

If you’re an artist or developer:

• Use ERC721-C if you’re minting on a compatible chain. It’s the strongest protection available.
• Check which marketplaces your NFTs are being traded on. If Blur or LooksRare show up, you’re likely losing royalties.
• Don’t rely on OpenSea or other legacy platforms to enforce payments. Assume they won’t.
• Consider minting on Hedera or other networks with native royalty enforcement.
• Communicate clearly with your buyers: "I depend on royalties to keep creating. Please support them."

Future Outlook

The fight over NFT royalties isn’t over. It’s just getting started. More standards will emerge. More chains will build enforcement into their core. Some marketplaces will die off. Others will adapt.

But until creators regain control over their own work - until royalties are no longer optional - the promise of Web3 remains unfulfilled. The technology exists. The question is: who will use it?