Resale Royalty in NFT Marketplaces: Implications for Creators and Platforms

39 Pages Posted: 28 Sep 2022 Last revised: 16 Nov 2023

See all articles by Murat M Tunc

Murat M Tunc

Tilburg University

Hasan Cavusoglu

University of British Columbia (UBC) - Sauder School of Business

Eric Zheng

University of Texas at Dallas

Date Written: August 31, 2022

Abstract

Non-fungible token (NFT) marketplaces facilitate users to mint and trade digital assets such as collectibles, trading cards, and digital artwork. Many NFT platforms accommodate resale royalty which pays back the creator a predetermined percentage of the proceeds from future resales of the digital asset. The adoption of resale royalty is seemingly beneficial for NFT creators as it generates a recurring source of income. However, this may have unintended consequences on the sales price and the liquidity of the underlying NFT, which, in turn, affect commission revenue for the platform. In this paper, we focus on understanding the antecedents as well as the consequences of resale royalty. Specifically, we investigate the impact of minting cost on royalty rate, as well as the impact of resale royalty on primary market sales price and liquidity. Our identification strategy leverages a policy change that eliminated upfront minting fees for creators in a prominent NFT marketplace. We find that NFT creators reduce royalty rate when they mint an NFT without incurring a minting cost. Furthermore, we observe that a higher royalty rate can lower primary market sales prices, decrease the sale likelihood, and increase the time to sale. These results suggest that resale royalty may not necessarily benefit NFT creators. Surprisingly, the presence of resale royalty impairs market liquidity, despite reduced sales prices. Our work provides immediate implications to creators and platforms when leveraging resale royalty in NFT marketplaces.

Keywords: Non-Fungible Token, Resale Royalty, Blockchain, Digital Art, Online Marketplaces, Economics of Information Systems

Suggested Citation

Tunc, Murat M and Cavusoglu, Hasan and Zheng, Eric, Resale Royalty in NFT Marketplaces: Implications for Creators and Platforms (August 31, 2022). Available at SSRN: https://ssrn.com/abstract=4205814 or http://dx.doi.org/10.2139/ssrn.4205814

Murat M Tunc (Contact Author)

Tilburg University ( email )

Warandelaan 2
K 826
Tilburg, 5037 AB
Netherlands
+31 134 664 755 (Phone)

HOME PAGE: http://muratmtunc.github.io/

Hasan Cavusoglu

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Eric Zheng

University of Texas at Dallas ( email )

800 W. Campbell Rd
Richardson, TX 75080
United States

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