Why On-Chain Royalties Are Non-Negotiable for the Future of Creativity

The dominant NFT marketplace's optional royalty model has collapsed creator payouts. This isn't competition; it's value extraction from the protocol layer.

• Royalty compliance on Blur fell to <20% after its fee switch.
• Creates a tragedy of the commons where liquidity platforms profit while the underlying asset (the collection) is devalued.
• Forces a false choice between liquidity and sustainability, harming long-term collectors.

Smart contract-enforced royalties are the only viable technical primitive. Marketplaces become permissionless executors, not gatekeepers.

• Standards like EIP-2981 and EIP-721C allow collections to blocklist non-compliant marketplaces.
• Shifts power from aggregators (Blur, OpenSea) back to creators and their communities.
• Enables programmable royalty streams for co-creation and on-chain patronage.

On-chain royalties are not a NFT feature; they are the base layer for all digital property rights, from music to AI training data.

• Sound.xyz and Catalog prove enforceable royalties enable sustainable creative careers.
• Future AI media and dynamic NFTs require granular, automated value flows.
• Without this primitive, Web3 reverts to the ad-driven extractive models of Web2.

The Problem: ERC-721/1155 have no native royalty field, forcing reliance on marketplace goodwill. The Solution: ERC-721C introduces on-chain, configurable royalty logic with enforcement hooks. It's a programmable standard, not a static percentage.

• Creator-Controlled: Royalty rules and splits are set in the smart contract, not a registry.
• Gas-Efficient: Adds minimal overhead vs. basic transfers, with ~5-10% gas increase.
• Adoption Vector: Backed by major platforms like OpenSea and integrated into creator tooling.

The Problem: Royalties are an afterthought, a tax applied post-trade. They should be a first-class primitive. The Solution: This proposed EIP bakes a royalty payment mechanism directly into the core transfer logic of tokens. It makes paying the creator as fundamental as updating the owner's balance.

• Settlement Guarantee: Royalties are non-optional and atomic with the transfer.
• Protocol-Level: Moves enforcement from marketplace policy to Ethereum consensus.
• Future-Proof: Designed for a multi-chain world, enabling clean cross-chain royalty flows.

The Problem: Generic marketplaces optimize for volume, not artist sustainability. The Solution: Full-stack ownership of the music NFT experience—from minting to marketplace to player—allows for hard-coded, non-negotiable royalty enforcement.

• End-to-End Control: The protocol defines the rules; the marketplace and player enforce them.
• Proven Model: Has facilitated $50M+ in primary sales with guaranteed secondary royalties.
• Strategic Leverage: Demonstrates that the most effective enforcement comes from owning the entire value chain, not fighting aggregators.

The Problem: In a purely competitive landscape, the marketplace with the lowest fees (including waived royalties) wins volume, creating a race to the bottom. The Solution: Analysis of the Blur vs. OpenSea war proves that code, not policy, is the only reliable enforcement. Blur's optional royalty model forced universal capitulation.

• Market Reality: Volume follows liquidity and low cost, not ethical commitments.
• The Takeaway: This conflict was the catalyst for ERC-721C and EIP-7504. It proved that royalty enforcement must be trustless and exist outside marketplace business models.

Enforcing royalties on-chain can fragment liquidity and kill secondary market volume. If a collection's floor price is $100 with royalties but $80 without, arbitrageurs and traders will migrate to the cheaper, non-compliant fork, starving the original of fees.

• Market Fragmentation: Blur's optional royalties proved traders prioritize cost over creator support.
• Value Extraction: Royalties become a tax that liquidity flees, creating a race to the bottom.
• Result: A 0% royalty on a dead market yields less than a 5% royalty on a vibrant one.

Forcing royalty logic into core transfer functions (ERC-721, ERC-1155) adds permanent overhead for all users, even for non-royalty assets. This violates the Unix philosophy and increases gas costs and complexity for the entire ecosystem.

• Universal Tax: Every transfer pays for a feature only some NFTs use.
• Innovation Drag: New standards (ERC-6551, ERC-404) must awkwardly retrofit royalty logic.
• Scalability Hit: Adds ~10-20k gas per transfer, a non-trivial cost at scale.

On-chain code is not law if marketplaces and aggregators can bypass it. A smart contract can mandate a fee, but a centralized marketplace's order book or a private pool (like Sudoswap) can ignore it. True enforcement requires monopolistic control over liquidity, which is antithetical to decentralized finance.

• Bypass Vectors: Private pools, off-chain order books, and wrapper contracts.
• Centralization Pressure: Leads to whitelisted marketplaces, killing permissionless innovation.
• Reality: The most efficient market will always route around the fee.

Royalties imposed after the initial sale are a retroactive change to the social contract. Collectors who bought an asset under one set of economic rules see their asset's liquidity and value penalized by new rules. This breeds community distrust and litigation risk.

• Breach of Trust: Changes the fundamental economics of a held asset.
• Legal Gray Zone: Could be viewed as an unenforceable adhesion contract.
• Outcome: Alienates the core holder base necessary for long-term project health.

The 2022-23 royalty wars between Blur and OpenSea demonstrated that aggressive, optional royalty policies force all marketplaces to compete on fee elimination. This creates a prisoner's dilemma where no single actor can uphold royalties without losing volume, crushing the business model of creator-centric platforms.

• Prisoner's Dilemma: OpenSea's fee enforcement led to immediate volume loss to Blur.
• Winner-Take-All: Competition optimizes for trader, not creator, economics.
• Data Point: Blur captured ~80% of NFT volume by making royalties optional.

Hardcoding a static royalty percentage ignores the lifecycle of creative work. A 10% fee on a blue-chip PFP is sustainable; the same fee on a high-velocity gaming asset or fractionalized piece is prohibitive. On-chain enforcement lacks the nuance for dynamic, context-aware fee structures.

• One-Size-Fits-None: Static percentages don't suit all asset classes (art, gaming, music).
• Kills Micro-Transactions: Makes high-frequency, low-value trading economically impossible.
• Future-Proofing Fail: Cannot adapt to new models like streaming royalties or revenue sharing.