Why NFT Royalty Enforcement Requires Formal Verification

Royalties are unenforceable promises. Smart contracts execute code, not social consensus. The EIP-2981 standard is a suggestion, not a rule, and marketplaces like Blur and OpenSea have disabled enforcement to compete on fees.

The core failure is architectural. Royalty logic is a secondary market feature bolted onto a primary asset standard like ERC-721. This creates a principal-agent problem where the platform's economic incentives directly oppose the creator's.

Formal verification is the only solution. Proving a marketplace's contract invariably calls a royalty function requires mathematical proof, not trust. Tools like Certora and Runtime Verification can audit this, but no major platform has submitted to it.

Evidence: Creator earnings on Ethereum fell over 90% after Blur's 2023 policy shift, proving that code-is-law only applies when the economic alignment exists to write the correct law first.

Royalty enforcement is a logic problem. Existing solutions like EIP-2981 or operator filter registries rely on market cooperation, which fragments liquidity and is gamed by protocols like Blur. This creates a prisoner's dilemma where the dominant market's policy dictates the standard.

Smart contract logic is the only sovereign layer. The core issue is verifying that a secondary sale's payment flow honors creator splits. This requires proving the correctness of the payment routing logic itself, not trusting a marketplace's compliance.

Formal verification provides mathematical proof. Tools like Certora or K-framework can mathematically prove that a contract's execution paths always route a percentage to a designated address. This shifts trust from entities to cryptographically-verifiable code.

Evidence: The failure of OpenSea's Operator Filter demonstrates market-led solutions are unstable. In contrast, a verified royalty primitive embedded in a standard like ERC-721C creates a credibly neutral base layer, making bypassing royalties as impossible as double-spending.

Royalties are social constructs enforced by centralized marketplaces like OpenSea and Blur. These platforms use off-chain policy lists and moral suasion, not cryptographic guarantees. When a marketplace like Sudoswap or a fork like Blur's optional model removes enforcement, the promise to creators breaks instantly.

Smart contracts are permissionless and composable. A standard ERC-721 NFT has no inherent logic to redirect secondary sale proceeds. This creates a principal-agent problem: the creator (principal) depends on the marketplace (agent) to enforce terms the underlying asset ignores.

The result is systemic leakage. Over $100M in creator royalties were lost in 2023 alone as marketplaces competed on fee structures. This proves that off-chain enforcement is a temporary subsidy, not a sustainable protocol-layer feature.

Formal verification is the only solution that aligns incentives with code. It mathematically proves a contract's logic, like a royalty payment module, behaves as specified under all conditions, making promises as immutable as the NFT itself.

Royalty enforcement is a logic problem. On-chain royalties require a contract to intercept a sale and divert a fee. This is a state transition with strict pre- and post-conditions that standard testing misses edge cases.

Formal verification provides mathematical proof. Tools like Certora and Runtime Verification model contract behavior as formal specifications. The prover exhaustively checks all possible execution paths, guaranteeing the fee logic is unforkable.

ERC-721C is the test case. This standard embeds verifiable royalty logic directly into the token contract. Unlike marketplace-level enforcement, which Blur bypassed, verified on-chain logic makes non-compliance a protocol violation, not a policy choice.

Evidence: The Seaport 1.6 upgrade from OpenSea integrated formal verification for its new fulfillment logic, preventing billions in potential loss from reentrancy or logic bugs in high-value NFT trades.

Formal verification is preventative security. The cost of a single, high-profile exploit from a flawed royalty enforcement contract—like a bypass on a major marketplace—destroys creator trust and protocol value. This is a known failure mode in systems like Seaport.

Complexity is a feature, not a bug. The composability of NFT ecosystems with marketplaces (Blur, OpenSea), aggregators (Gem), and new standards (ERC-721C) creates unpredictable state interactions. Manual auditing misses edge cases that formal methods like those from Certora or Runtime Verification catch.

The cost curve is bending. Tools like the K Framework for Ethereum and Move Prover for Aptos/Sui are reducing verification time. The initial investment secures the protocol's core revenue mechanism against all future forks and adversarial marketplaces.

Evidence: The 2022 $325M Wormhole bridge hack resulted from a missing validation check—a bug formal verification would have flagged. Royalty enforcement is a simpler, more critical financial invariant.