One of the unique features of non-fungible tokens (NFTs) is the ability to distribute royalties from resales. When the digital artist Beeple’s NFT piece “Crossroads” was resold on the secondary market for $6.6 million in February at more than 100 times the original sale price, Beeple himself netted a 10% royalty from the transaction. NFTs are smart-contract based digital assets that can facilitate and enforce the terms and conditions of the transaction. How does the royalty structure work in NFTs and to what extent are they customizable, and what are the legal limitations of such “smart contracts”?
Pratin Vallabhaneni and Adam Chernichaw, partners at White & Case, explain how the NFT royalty feature works, the potential legal issues surrounding resale royalty rights, and the regulatory considerations for NFTs.