The Hidden Economy
Billions of dollars circulate in a secondary market that most businesses either overlook or restrict. In both cases, they forfeit economic value generated in secondary markets and relinquish control over their product’s ecosystem.
First, consider the value problem. In the concert industry, an organizer bears the risk of producing a show, but its revenues are limited to the face value of the tickets to the show. If demand spikes, resellers capture the entire premium and leave the organizer empty-handed. This misalignment separates producers from the true market value of their work, which has prompted regulators like the UK government to seek bans on reselling tickets above their face value to curb scalping.
Second, consider the control problem. When a secondary market is ignored, it often turns into a “gray market” prone to abuse. The video game Football Ultimate Team offers a stark example. Before 2015, players traded items freely, which spawned an illicit economy where third-party sites facilitated real-money trades that violated the game’s terms. The game publisher Electronic Arts (EA) was forced to impose strict price caps, which stopped the illicit trades but crushed the legitimate trading economy that players loved. The dilemma faced by EA is common to this hidden economy: tolerate unregulated activity or impose restrictions that stifle legitimate trade.
A New Environment
Two major developments have turned this problem into an opportunity: better technology and clearer regulations.
The first is “smart contracts”—programmable rules that govern how one interacts with a digital item. Crucially, new standards like ERC-721-C have made these rules, especially around royalties, strictly enforceable. Unlike older standards that allowed marketplaces to bypass royalty fees, ERC-721-C forces every transaction to honor the creator’s royalty logic. It doesn’t matter where the item is sold; the code ensures the creator gets its cut before the transaction settles. This technological leap removes the need for a middleman to collect fees, eliminating counterparty risk.
Second, the regulatory picture is shifting in ways that are broadly favorable to creator–royalty models. U.S. regulators have scrutinized blockchain tokens for years; for example, the U.S. Securities and Exchange Commission (SEC) issued a Wells notice to OpenSea in 2024, indicating that it was likely to make formal charges against it because it considered the nonfungible tokens (NFTs) sold on its platform to be securities. However, on May 19, 2025, SEC Commissioner Hester Peirce publicly stated that many NFTs “are not securities, including NFTs designed to compensate their creators over time,” which signaled that companies can build these revenue streams without necessarily tripping over securities laws.
Relevant Products
Not every digital product is a candidate for resale royalties. To capitalize on this model, products must pass a three-part economic test:
- Excludable: Can you own it? A royalty-bearing asset must be something a specific user controls and others do not.
- Durable: Does it last? The item must persist long enough to be traded.
- Transferable: Can you resell it? If the item is locked into a user’s account, no secondary market can exist. The technology must allow for the secure, peer-to-peer transfer of it.
Based on these tests, five categories stand out as prime targets for this new model:
1. Digital Collectibles
Think of digital art, rare trading cards, or limited-edition music drops. Their value comes primarily from scarcity and community interest. Like physical art, they are often resold many times, with the value fluctuating based on trends and demand. This volatility makes them perfect for royalties as they allow the creator to capture value from every subsequent price spike.
2. Event Tickets
Secondary markets for tickets are already huge, often eclipsing the primary market in value. Royalties allow organizers to capture the premiums that currently go to scalpers. Instead of fighting the secondary market, organizers can participate in it, ensuring that higher prices on ticket resale platforms flow back to the artists and venues.
3. Virtual Real Estate and IDs
As digital worlds expand, “location” matters. Things like digital land in a metaverse or premium usernames (like a rare handle on X or a short domain name) have high value and are traded publicly. These are effectively digital real estate assets that can generate significant royalty revenue.
4. Software Access
Transferable software licenses are an often-overlooked opportunity. Think of a “lifetime seat” for a SaaS product or a “founder’s pass” that grants premium access. Buyers will pay a premium on the secondary market for a license that retains long-term utility, allowing the software provider to capture value even years after the initial sale.
5. Virtual Goods
In-game items like cosmetics or rare weapons often trade for real money in gray markets. By formalizing this trade with royalties, developers align their incentives with the player economy. If players trade more, the developer earns more, incentivizing them to support a vibrant, healthy trading ecosystem rather than crushing it.
Strategic Impacts
Resale royalties offer companies more than just a new revenue stream; they fundamentally reshape the relationship between product, customer, and brand. Here’s how.
Recurring Revenue and Better Data
Instead of a one-time sale, you get a recurring stream of income. In active markets, this adds up. For example, during the 2021 NFT boom, platforms captured millions of dollars in secondary fees. But the value isn’t just cash; it’s also information. Resale prices provide a real-time signal of exactly how much customers value your product. This allows companies to price future releases more accurately, or even adjust the scarcity of items dynamically based on market demand.
Endowment Effect and Lower Barrier to Entry
When customers know an item can be resold, they treat it differently. It feels less like a sunk cost and more like something you own, and this “endowment effect” can reduce the psychological friction of purchase. A gamer might hesitate to spend $20 on a skin that is locked to his account forever. But if he knows he can sell it later, that purchase becomes easier to justify. Furthermore, because companies know they will earn royalties later, they can often afford to price the initial sale lower, lowering the barrier to entry for new customers. This combination attracts an entirely new segment of buyers who view digital goods as lasting assets.
Engagement and Retention
Owners stay engaged more than renters or bystanders. When users hold assets with verifiable value, they have a strong incentive to remain active in the ecosystem. They are not just consumers; they are stakeholders. Because the company earns from resale, it is motivated to maintain the product’s long-term value, directly aligning its interests with those of its customers. This creates a virtuous cycle: The company updates the product to support asset value, users stay engaged to enjoy that utility, and the resulting trading volume generates revenue that funds further development.
Implementation Strategies
Once you decide to use royalties, you need a strategy. We outline four main approaches, and the right choice depends on your product and your market position.
Volume-Driven: Maximize the Number of Trades
This model works best for high-frequency items like digital trading cards or gaming consumables. The goal is to get the item into as many hands as possible. You might set the primary price low (or even free) to seed the market. The revenue comes from the sheer velocity of trading. You need a highly liquid market where buying and selling is frictionless.
Premium-Driven: Scarcity and Exclusivity
This is the luxury model. Sell fewer items at a high price but keep a modest royalty attached. This is appropriate for limited editions, digital art, or premium identifiers like short domain names or rare user handles. The royalty here serves a double purpose: It generates revenue, but it also signals authenticity. Luxury consumers want assurance that their item is genuine. The blockchain history that enforces the royalty also provides the provenance that proves the item is the real deal, which protects the brand’s prestige.
Platform-Driven: Own the Marketplace
This is the Ticketmaster or Steam model. You control the venue where trading happens and can enforce royalties. The strategic advantage here is control: You own the customer data and the user experience. However, proprietary marketplaces are costly and face the “cold start” problem: convincing users to abandon established general marketplaces for a new platform.
Ecosystem-Driven: Works Everywhere
Create products that can be used and traded across different games or apps. This offers the biggest long-term potential because your product has more utility. If a sword can be used in three different games, it’s inherently more valuable than a sword locked to one. However, this is the hardest strategy to execute as it requires making things work seamlessly across different ecosystems. It’s a high-risk, high-reward play for industry consortiums or dominant players who can set standards.
Risks and Trade-offs
Opening a resale market forces companies to balance revenue against market health. The most critical trade-off is friction vs. revenue. Adding a royalty fee makes trading more expensive, effectively taxing liquidity. If you charge too much, traders will stop trading, or worse, move to a platform that ignores your royalties.
The NFT market learned this the hard way. When OpenSea, the leading marketplace, enforced royalties, a competitor named Blur launched with zero fees to court professional traders. Blur captured a huge chunk of the market in weeks, forcing OpenSea to make royalties optional to survive. The lesson is clear: You must balance margin (royalty rate) against liquidity (trading volume). If you set rates too high in a liquidity-driven market, the liquidity dries up, and the trading stops.
Finally, there is the risk of volatility. Speculators may try to corner the market or use bots to front-run real users, hurting your community. Companies need to treat this as a design challenge, not just a policing problem. You can use the smart contract itself to set guardrails, such as enforcing minimum holding periods or setting a “decaying royalty” (e.g., 50% in the first week to discourage flipping, dropping to 5% later). Designing for stability is just as important as designing for revenue.
Start Small
Companies can finally turn secondary sales into sustainable revenue, moving from a one-way sales model to a circular economy where value persists. To succeed, start small: launch a pilot, test royalty rates, and adapt based on real trading data. With technology ready and regulations clear, the opportunity is open for companies to claim their stake in the resale economy.