Why Smart Contract Upgradability Dooms Royalty Streams

The dominant upgrade mechanism (e.g., EIP-1967, UUPS) centralizes control in a proxy admin key. This creates a single point of capture for governance attacks or regulatory pressure. Royalty logic is mutable, not a property of the asset.

• Admin key compromise instantly voids all royalty terms.
• DAO governance fatigue leads to low-turnout votes, enabling capture.
• Legal pressure can force a 'compliance' upgrade that strips royalties.

Marketplaces like Blur and OpenSea demonstrated that royalty enforcement is a social contract. By building aggregators that bypass on-chain checks, they can unilaterally set effective royalty rates to 0%. Upgradable contracts cannot defend against this exogenous market structure attack.

• Aggregator dominance routes volume to non-compliant pools.
• Creator opt-in tools (Operator Filter) were gamed and abandoned.
• Result: Royalties became optional, collapsing a $1B+ annual creator revenue stream.

Immutable programs like Metaplex's Bubblegum for cNFTs bake royalty logic directly into the asset's core state machine. There is no admin key or upgrade path. Royalty enforcement shifts from mutable contract logic to immutable protocol rules, making erosion a hard fork-level event.

• State-based enforcement: Royalties are a property of the asset, not a contract setting.
• No proxy admin: Eliminates the central point of failure.
• Trade-off: Requires more rigorous initial design and limits post-deployment fixes.

Long-term, sustainable royalties must be enforced at the settlement layer, not the application layer. Projects like Anoma's intent-centric architecture or Ethereum with native account abstraction could treat royalties as a mandatory transaction tax validated by the base layer. This moves the battle from governance to consensus.

• Settlement-level enforcement: Marketplaces cannot bypass L1/L2 rules.
• Aligns with L2 revenue models: Similar to sequencer fee sharing.
• Future-facing: Makes royalties a public good funding mechanism, not a feature.

Blur's optional royalty enforcement was a market-share weapon, not a design flaw. It weaponized upgradability to set a new, fee-less standard, forcing OpenSea to follow.

• Result: Creator royalties on major collections collapsed from a standard 5-10% to near 0%.
• Mechanism: A simple proxy contract upgrade changed the fee logic, demonstrating that on-chain enforcement is a social contract, not a technical one.

Smart contracts are deployed immutable, but market logic must adapt. The industry 'solution' was the proxy pattern, which centralizes upgrade power in an admin key.

• Vulnerability: A single private key or multisig holds the power to alter fee structures, transfer logic, or rug the entire contract.
• Consequence: This creates a centralized failure point that undermines the decentralized value proposition, making royalties a policy, not a protocol guarantee.

Fight fire with code. ERC-721C bakes royalty logic directly into the NFT token contract using immutable, configurable security policies.

• Mechanism: Royalty rules are set at mint and enforced via on-chain allowlists/denylists for marketplaces, removing the marketplace's ability to circumvent.
• Adoption: Led by Limit Break, it represents a shift of power back to creators, forcing marketplaces to comply or lose access to top collections.

SudoSwap's AMM pools were famously immutable and fee-less. To introduce royalties, the team had to deploy entirely new factory and pool contracts.

• Lesson: True immutability protects users from rug pulls but creates extreme rigidity. It's the opposite end of the spectrum from upgradeable proxies.
• Trade-off: This highlights the core dilemma: flexibility for founders vs. security for users. There is no perfect middle ground with current patterns.

Upgradeable contracts rely on a proxy pointing to a mutable logic contract. This creates a single point of failure and control. Royalty terms are not embedded in the immutable NFT itself but in this mutable logic layer, which can be changed unilaterally.

• Key Risk: A single admin key or DAO vote can slash royalties to 0%.
• Key Consequence: Destroys trust in the asset's long-term economic model, as seen with Blur's influence on the market.

The only credible guarantee for royalties is immutable contract code. Projects like Art Blocks and early CryptoPunks demonstrate that non-upgradable contracts create verifiable, long-term revenue streams. This aligns incentives between creators, holders, and investors.

• Key Benefit: Royalty logic is burned into the chain, auditable by all.
• Key Benefit: Enables true financial modeling of an NFT as a yield-bearing asset.

Builders must prioritize ERC-721C (Creator Royalties) or similar enforceable standards over custom, upgradeable logic. Investors should treat upgradability as a material red flag in due diligence, discounting valuations of assets with mutable terms.

• Action for Builders: Use immutable contracts or modular, user-enforced standards.
• Action for Investors: Demand on-chain, irrevocable royalty proofs; avoid proxy-dependent assets.