Why On-Chain Royalties Are the Only Sustainable Model

Royalty erosion is market feedback. Off-chain agreements on OpenSea or Blur are unenforceable social constructs. The race to zero on secondary markets signals that creator royalties require native protocol logic, not platform promises.

On-chain enforcement realigns incentives. Protocols like Manifold and Zora bake royalties into the NFT's transfer logic via ERC-2981 or custom modules. This shifts power from centralized marketplaces to the asset's immutable code, making royalties a property right, not a negotiable fee.

The data validates the shift. After Blur's optional royalties, collections with hard-coded on-chain royalties retained over 95% of their royalty yield, while those relying on marketplace policy saw collapses exceeding 80%. This divergence proves enforceable code is the only reliable vector.

Zero-fee marketplaces are a dominant strategy. In a competitive landscape, any single marketplace that removes creator royalties gains a temporary volume advantage, forcing all others to defect to survive. This creates a Nash equilibrium of zero royalties, where no single actor can profitably deviate.

On-chain enforcement is the only stable solution. Off-chain promises and moral licensing, as seen with OpenSea's Creator Fees tool, fail because they rely on voluntary compliance. Protocols like EIP-2981 and ERC-721C with configurable royalties shift the game's rules, making fee avoidance a technically impossible move.

The data proves defection is inevitable. After Blur's aggressive zero-royalty strategy, its market share surged, compelling OpenSea to suspend mandatory fees. This prisoner's dilemma destroyed over $100M in annual creator revenue across the ecosystem, demonstrating that off-chain coordination always breaks down.

On-chain royalties are non-negotiable. They are a property right encoded into the asset's logic, not a social norm. Marketplaces like Blur that bypass them are arbitraging the protocol layer, extracting value from creators to subsidize trader liquidity.

Flexibility creates a tragedy of the commons. Optional royalties, as seen with OpenSea's operator filter, create a race to the bottom. Every marketplace has an economic incentive to defect, destroying the collective revenue stream for creators.

The rigidity is the feature. It prevents value leakage and ensures sustainable funding for ongoing development. Projects like Art Blocks and y00ts use this model to fund generative art tools and community grants directly from secondary sales.

Evidence: Creator earnings on Ethereum, where EIP-2981 is prevalent, are orders of magnitude higher than on chains with weak enforcement. This funds ecosystem development that purely financialized NFT models cannot replicate.

Royalties are an incentive mechanism, not a tax. Treating them as an optional feature for marketplaces like Blur or OpenSea creates a race to the bottom that destroys the creator asset class. Protocol-level enforcement via standards like ERC-2981 or ERC-721C aligns long-term incentives for creators, collectors, and platforms.

Optional royalties are a market failure. They externalize the cost of creator attrition onto the entire ecosystem. The Blur Wars demonstrated that fee abstraction is a temporary subsidy, not a sustainable model. Protocol-native royalties, as seen on Manifold or Zora, internalize this cost into the asset's lifecycle.

The data proves the model works. Creator earnings on platforms with enforced royalties show a 10-50x multiplier versus those without. This isn't charity; it's a protocol-owned liquidity mechanism that funds continuous innovation and ecosystem growth directly from secondary market activity.