The Future of Public Goods Funding: NFT Royalties as a Mechanism

Traditional NFT royalties are a friction tax on secondary sales, creating adversarial dynamics between creators and traders. They are easily circumvented by marketplaces like Blur, leading to ~80% non-compliance and unreliable revenue streams for creators.

• Creators lose predictable income.
• Ecosystems lose a sustainable funding mechanism.
• Traders face fragmented market liquidity.

New standards like ERC-2981 and ERC-721-C (Creator Registry) embed royalty logic directly into the NFT contract, making them marketplace-agnostic and enforceable. This transforms royalties from a policy to a programmable right.

• Guarantees on-chain revenue capture.
• Enables complex splits (e.g., 5% to artist, 2% to DAO).
• Creates a verifiable, trust-minimized funding rail.

Protocols with substantial on-chain treasuries (e.g., Arbitrum DAO, Optimism Collective) can programmatically allocate a portion of captured royalties to public goods. Smart contracts automate grants, retroactive funding (like Optimism's RPGF), and ecosystem incentives.

• Turns revenue into permissionless capital.
• Automates funding via DAO votes or algorithmic rules.
• Aligns creator success with ecosystem growth.

Marketplaces like Blur and OpenSea's optional model broke the social contract, cratering creator revenue. The problem isn't enforcement, but incentive misalignment between platforms and creators.

• Royalty revenue dropped >50% for major collections post-optional models.
• Enforcement via token-gating fragments liquidity and harms collectors.
• The solution requires a new protocol-native primitive, not marketplace policy.

A technical standard to embed royalty logic directly into the NFT smart contract, making payments unstoppable and portable across any marketplace.

• Shifts power from marketplace policy to code-as-law.
• Enables complex splits (e.g., 5% to creator, 2% to DAO treasury).
• Projects like Manifold and 0xSplits are building the infrastructure for composable revenue streams.

NFT collections are directing a portion of secondary sales to fund their ecosystem's public goods, creating a sustainable flywheel.

• Art Blocks funds artist grants and platform development from royalties.
• Nouns DAO uses its 100% self-sustaining treasury, fed by daily NFT auctions, to fund everything from software to documentaries.
• This transforms royalties from individual income into a protocol-owned growth engine.

High gas fees on Ethereum L1 made royalty enforcement economically nonviable for sub-$1000 trades. L2s and app-chains solve this.

• < $0.01 transaction fees on chains like Base or Arbitrum make micro-royalties feasible.
• Dedicated creator chains (e.g., Zora Network) can hardcode royalty logic at the consensus layer.
• The future is high-frequency, low-value royalty streams enabled by scalable execution.

NFT fractionalization protocols like Fractional.art (now Tessera) allow royalties to be distributed to token holders, creating a new on-chain asset class.

• Turns a royalty stream into a tradable yield-bearing instrument.
• Enables liquidity provisioning against future creator revenue.
• This financialization attracts capital but introduces regulatory scrutiny around securities laws.

The end-state is a full-stack, interoperable system for creator funding, moving beyond simple royalties.

• Minting: Zora, Manifold.
• Royalties & Splits: 0xSplits, EIP-2981.
• Funding & Grants: Juicebox, Nouns DAO.
• Analytics: Chainscore for tracking royalty revenue streams and protocol health.
• Composability turns isolated tools into a global creator financial system.

Royalties are a social contract, not a technical one. Marketplaces like Blur and OpenSea have already made them optional, leading to a >90% drop in royalty compliance on some chains. Without on-chain enforcement, the funding stream is voluntary and unreliable.

• Key Weakness: Relies on centralized marketplace policy, not protocol logic.
• Key Risk: Creates a race to the bottom where zero-fee marketplaces dominate.

Royalties extract value from secondary sales, which are inherently speculative and volatile. This creates a pro-cyclical funding model that dries up in bear markets when public goods are needed most. It's a tax on momentum, not a sustainable revenue stream.

• Key Weakness: Funding correlates with NFT bubble cycles, not real utility.
• Key Risk: Projects become dependent on a highly unstable and diminishing tax base.

Intent-based architectures and atomic composability allow users to route around royalty checks entirely. Systems like UniswapX, CowSwap, and Across demonstrate that users will find the most efficient path, which will be the one that bypasses fees.

• Key Weakness: Royalties are a layer-application feature, easily circumvented at the settlement layer.
• Key Risk: Permanently leaky bucket as MEV searchers and aggregators optimize for fee avoidance.

The mechanism assumes creators will allocate royalties to public goods, but they are rational economic actors. Most will pocket the funds. This turns the model into a hopeful trickle-down scheme rather than a direct funding mechanism. See the failure of general "artist funding" promises.

• Key Weakness: No sybil-resistant mechanism to verify or enforce "public good" allocation.
• Key Risk: Becomes a PR tool for creators, not a reliable funding rail for infrastructure.

Royalty standards and rates are not uniform across chains or marketplaces. This creates a coordination nightmare for fund collectors and makes the funding stream unpredictable and costly to aggregate. It's the opposite of a seamless, global public good funding solution.

• Key Weakness: Lack of a universal, chain-agnostic standard for royalty routing and collection.
• Key Risk: High overhead to collect fractions of pennies across dozens of fragmented ecosystems.

More efficient, direct mechanisms like Retroactive Public Goods Funding (RPGF) from Optimism and Ethereum protocol-level PBS/MEV redistribution are emerging. These are funded by network value capture, not secondary sales taxes, making them more sustainable and aligned.

• Key Weakness: Competes with models that have stronger economic foundations and community buy-in.
• Key Risk: Becomes an obsolete, complex middleman as better primitives are adopted.