Why Royalty Enforcement Is a Protocol-Level Problem

Royalty enforcement is a protocol-level problem. Marketplaces like Blur and OpenSea operate in a prisoner's dilemma where the dominant strategy is to bypass creator fees to attract traders, destroying the collective good of sustainable creator economics.

Smart contracts cannot enforce payments they cannot see. An NFT's transfer logic is blind to the marketplace aggregator or off-chain order flow that facilitated the sale, creating a fundamental data availability gap.

The solution requires a new primitive. Protocols like Manifold's Royalty Registry or EIP-2981 attempt standardization, but they are optional. True enforcement needs a settlement-layer mandate, akin to how UniswapX's fillers must respect on-chain rules.

Evidence: After Blur's no-fee model, creator royalties on major collections plummeted from ~5% to near 0%, proving that marketplace-level promises are economically unstable.

Marketplaces cannot enforce royalties. They operate at the application layer, competing on price and liquidity. This creates a prisoner's dilemma where any marketplace removing fees gains a temporary advantage, as seen with Blur's race to zero against OpenSea.

Smart contracts are not sovereign. An NFT's transfer function is a dumb pipe; it cannot natively validate or reject a payment. This lack of stateful logic at the asset layer is the root cause, making royalties an optional social construct.

The solution is protocol primitives. Just as Uniswap embeds fees in its AMM constant product curve, royalties require native, unbypassable hooks in the token standard itself, akin to ERC-20's approval/spend flow.

Evidence: After OpenSea's optional enforcement, creator earnings on major collections like Bored Ape Yacht Club dropped over 50% on competing marketplaces, proving application-layer solutions are inherently fragile.

Royalties are a protocol-level problem. NFT standards like ERC-721 and ERC-1155 are bearer assets with no built-in royalty logic, pushing enforcement to the application layer where it is optional and easily bypassed.

Marketplaces compete on fee avoidance. Platforms like Blur and OpenSea engage in a race to the bottom, with optional royalties becoming a feature to attract high-volume traders, fragmenting the ecosystem's economic model.

The result is a tragedy of the commons. Individual marketplaces profit from ignoring creator fees, but the collective action destroys a sustainable revenue stream for the entire NFT ecosystem, disincentivizing long-term creation.

Evidence: After Blur made royalties optional in 2023, creator fee collection across major collections like Bored Ape Yacht Club and Azuki plummeted by over 90% on secondary sales, demonstrating the fragility of app-layer enforcement.

Marketplaces are profit-maximizing competitors. A single marketplace enforcing royalties loses volume to a rival that bypasses them, creating a classic race to the bottom. This is not a technical failure but an unavoidable game theory outcome.

Protocol-level enforcement is non-negotiable. Royalties must be encoded in the asset's transfer logic, like ERC-721C or Seaport hooks, making bypassing them as impossible as stealing ETH from a wallet. Marketplaces like Blur and OpenSea become executors, not arbiters.

The evidence is historical. Look at LooksRare's vampire attack or Blur's zero-fee model: competition on fees and royalties is existential. The only sustainable solution moves the rulebook from the application layer to the settlement layer.

Protocols are not marketplaces. The core function of a blockchain like Ethereum is to provide a neutral settlement layer. Forcing it to embed specific business logic like royalty payments violates its minimalist design principle. This is a job for application-layer contracts, not the base protocol.

Permissionless composability drives innovation. Mandatory royalties create friction for derivative protocols. Projects like Blur and Sudoswap succeeded by building new models atop the existing NFT standard. Protocol-level enforcement would have stifled this experimentation and the resulting liquidity.

Users own their assets. A foundational tenet of Web3 is that on-chain assets are bearer instruments. Once a user purchases an NFT, they have the right to transact it freely. Enforcing royalties after the sale is a post-hoc restriction on property rights, contradicting crypto's ethos.

Evidence: The rapid migration of NFT volume to optional-royalty marketplaces like Blur demonstrates clear market preference. When given a choice, a significant portion of users and creators opt for lower transaction costs and greater flexibility, proving that rigid enforcement is not a universal demand.

Royalty enforcement is a protocol-level problem. Marketplaces like Blur and Magic Eden compete on fees, creating a race to the bottom that bypasses creator-set terms. Only the base layer, like Ethereum with EIP-2981 or Solana with Token Extensions, can embed royalties as an immutable transaction tax.

The solution is programmable value flows. Protocols like Manifold's Royalty Registry and 0xSplits create on-chain enforcement logic, directing fees before a marketplace can intercept them. This shifts the battleground from policy to cryptography.

Evidence: After optional royalties on OpenSea, creator earnings for some collections fell over 90%. In contrast, chains with native enforcement, like Ethereum via EIP-2981 adoption, see royalties treated as a non-negotiable smart contract call.