UCL School of Management welcome Professor Xinyu Cao, NYU/CUHK, to host a research seminar discussing “NFT Royalties and Art Market Efficiency.”

Abstract

A non-fungible token (NFT) is a uniquely identified digital asset that is verified using blockchain technology to prove ownership and authenticity. NFTs can be associated with a wide range of digital assets, including digital arts. A distinctive feature of NFTs is that they allow creators to receive royalties each time their work is sold on a secondary market, whereas in traditional art market, artists do not receive any royalties when their works are resold. In this paper, we study the effect of NFT royalties on the pricing decision of creators and the art market efficiency. We show that in the traditional art market (without rolyalties), a high-type creator tends to charge too high a price to prevent the low-type from mimicking, which makes the demand too low and the size of art market too small. NFT royalties reduce the high-type creator’s price distortion. Thus, a positive royalty rate can lead to a higher profit for the high-type creator and may also increase social welfare.