The Future of NFT Royalties in an MEV-Dominated Market

Searchers run bots to front-run, back-run, and sandwich NFT trades, capturing value that bypasses royalty checks entirely.\n- Royalty-Free Pools: Bots source NFTs from pools on Blur or Sudoswap with 0% creator fees.\n- Cross-Market Arbitrage: They exploit price differences between markets with and without royalties, eroding the fee.\n- Value Extraction: The ~$100M+ in MEV extracted from NFT markets represents lost creator revenue.

Smart contract-level enforcement makes royalties a non-optional protocol primitive, not a marketplace policy.\n- Creator-Owned Exchanges: Platforms like Zora and Manifold bake fees into the core contract logic.\n- On-Chain Allowlists: Only marketplaces respecting fees can interact, enforced by EIP-2981 or custom logic.\n- Irreducible Fee Sinks: Treats royalties as a fundamental token property, similar to a tax on a financial primitive.

Marketplace aggregators like Blur and Tensor abstract away the sale venue, routing trades to the cheapest liquidity.\n- Race to Zero: Aggregators prioritize pools with the lowest fees to offer users the best net price.\n- Opaque Routing: Users buy an NFT without knowing if the sale honored royalties, creating a principal-agent problem.\n- Liquidity Fragmentation: Royalty-respecting liquidity becomes isolated and illiquid, a death spiral for the model.

Shifts the paradigm from routing to fulfillment, allowing users to express a trade 'intent' that can include royalty constraints.\n- Fulfillment Competition: Solvers (like in CowSwap, UniswapX) compete to fulfill the intent, which can mandate royalty payment.\n- MEV Resistance: Private mempools (e.g., Flashbots SUAVE) and encrypted order flow prevent front-running on the intent.\n- Creator-Centric Routing: Solvers are incentivized to find liquidity that satisfies all intent parameters, including creator payouts.

Strict on-chain enforcement creates liquidity fragmentation, while optional royalties lead to near-total erosion.\n- Enforcement Cost: Projects like CryptoPunks saw ~90% volume shift to royalty-optional markets after enforcing fees.\n- Trader Apathy: The vast majority of traders opt for the cheapest execution, not ethical consumption.\n- Zero-Sum Game: This pits creators against their own community's desire for liquid, low-friction markets.

Bypasses the fee debate by making the NFT itself a productive asset that generates fees for the creator protocol.\n- Royalty-as-a-Service: The NFT grants access to a protocol (e.g., gaming, social) that takes a fee on usage or transactions.\n- DeFi Composability: NFTs as collateral in lending protocols (like JPEG'd) generate yield-sharing fees for creators.\n- Sustainable Model: Aligns creator revenue with ecosystem growth and utility, not just speculative secondary sales.

Blur aggregated liquidity and incentivized high-frequency trading via token rewards, creating a race to the bottom on fees. Its integration with searchers and private mempools (e.g., Flashbots Protect) allowed traders to front-run listings, bypassing royalty-enforcing marketplaces. The result: royalty payments on major collections plummeted from ~90% to below 20%.

• Weaponized Liquidity: Rewards created a volume war, disincentivizing royalty enforcement.
• MEV as a Weapon: Searchers could snipe and re-list NFTs before royalty-paying transactions.

Protocols are moving royalties from social consensus to irrevocable code. ERC-721C (from Limit Break) enables configurable, contract-level royalty enforcement with allowlists. Parallel approaches use transfer hooks or Sudoswap-style bonding curves that bake fees into the AMM logic. The future is programmable fee switches and royalties-as-a-service infrastructure.

• ERC-721C: Creator-controlled, gas-efficient enforcement standard.
• Protocol-Level Hooks: Royalties executed atomically on transfer, impossible to bypass.

Smart contracts are shifting from passive royalty collection to active value capture. This mirrors Uniswap's fee switch debate. Models include: AMM pool fees (like Sudoswap), staking rebates for fee payers, and burn mechanisms that create deflationary pressure. The goal is to align trader, creator, and protocol incentives without relying on unenforceable off-chain rules.

• Value-Aligned Incentives: Fees fund protocol treasury or are redistributed to stakeholders.
• Sustainable Economics: Moves beyond one-time sales to recurring revenue from utility.

Instead of fighting MEV, new infrastructure lets creators capture it. Manifold's Royalty Registry and 0xSplits enable complex, gas-optimized fee routing. Forward-thinking projects are exploring MEV-share models where searchers pay a premium for privileged order flow or intent-based systems that guarantee royalty inclusion. This turns a threat into a revenue stream.

• Royalty-Aware RPCs: Transaction bundling that prioritizes fee compliance.
• MEV Redistribution: A portion of arbitrage profits routed back to creators.

Mandatory royalty logic at the smart contract level is being systematically bypassed by marketplaces like Blur and aggregators like Uniswap's NFT platform. This creates a race to the bottom where liquidity follows the lowest fee structure, not creator value.

• Result: Royalty revenue for top collections has dropped by ~60-80% since 2022.
• Reality: Builders cannot rely on L1/L2 protocol rules alone; enforcement must be social and economic.

The future is intent-based order flow and private mempools. Projects like Manifold's Royalty Registry and 0xSplits enable creator-controlled allowlists and fee routing, making royalty compliance a pre-trade condition.

• Mechanism: Traders submit intents; solvers (e.g., CowSwap, UniswapX model) fulfill only if royalties are paid.
• Leverage: This uses the same MEV supply chain (Flashbots, bloXroute) that broke royalties to now enforce them.

Value will accrue to the pipes and routers, not the endpoints. Build and invest in the settlement layer that abstracts royalty logic away from volatile marketplace politics.

• Targets: Cross-chain royalty routing layers (like LayerZero, Axelar for NFTs), intent-centric aggregators, and on-chain enforceable split contracts.
• Metric: Follow Total Value Routed (TVR), not just marketplace volume. The protocol capturing the fee stream wins.

Royalties will become a modular, pluggable service. Think ERC-7579 for minimal modular smart accounts where royalty logic is a installed module. Creators deploy their own smart contract wallets (Safe, Biconomy) with baked-in fee rules.

• Stack: Creator Wallet -> Allowlist/Royalty Module -> Intent Aggregator -> Private Mempool.
• Benefit: Removes marketplace as a gatekeeper, creates persistent revenue streams across any frontend.