Why 'Opt-In' Royalties Are a Governance Failure

Opt-in royalties are a governance failure. They shift the enforcement burden from the protocol layer to the application layer, where incentives for compliance are misaligned. Marketplaces like Blur and OpenSea compete on fees, creating a race to the bottom where royalty removal is a feature.

The core failure is architectural. NFT standards like ERC-721 and ERC-1155 are permissionless but governance-agnostic, treating royalties as a suggested parameter rather than a programmable right. This creates a principal-agent problem between creators and platforms.

Evidence: After Blur's no-royalty marketplace pressure, creator earnings on major collections plummeted by over 60%. This demonstrates that fee competition destroys value when protocol rules are optional.

Opt-in royalties externalize costs. They shift the burden of enforcing creator revenue from the protocol to the marketplace, creating a classic tragedy of the commons. Marketplaces like Blur and OpenSea compete on fees, making royalty enforcement a competitive disadvantage.

The race to zero is inevitable. In a competitive landscape, the dominant strategy is to undercut on fees. This creates a Nash equilibrium where all major platforms default to minimal or zero royalties to capture volume, as seen with Blur's 0.5% model.

ERC-721C is a governance patch. Standards like Limit Break's ERC-721C attempt to retroactively enforce royalties via allowlists, but they are a reactive, fragmented solution. They prove the core protocol layer (ERC-721) failed to encode economic rights.

Evidence: After OpenSea made royalties optional in 2022, creator royalty payments on the platform fell by over 98% within months, demonstrating the immediate collapse of the model.

Marketplaces ceded protocol control. Blur and OpenSea made royalties optional to compete on price, treating the creator fee as a variable cost instead of a non-negotiable protocol rule. This created a classic tragedy of the commons where individual actors optimize for themselves at the network's expense.

ERC-721 is fundamentally incomplete. The standard defines token ownership but not enforceable downstream economics. This technical gap allowed marketplaces to reinterpret the social contract, proving that on-chain enforcement requires explicit, low-level code, not platform promises.

The failure is economic, not technical. Solutions like EIP-2981 and Manifold's Royalty Registry existed but lacked adoption because they required marketplace cooperation. This demonstrates that governance without credible on-chain enforcement is just marketing.

The core failure is incentive misalignment. A marketplace's primary revenue is transaction fees, not creator royalties. Blur and OpenSea optimize for volume, which directly conflicts with enforcing fees that reduce trader profits and liquidity.

This is a textbook governance failure. The ERC-2981 standard and EIP-6968 proposal are reactive patches for a systemic flaw. They treat a protocol-level economic problem as a marketplace-level feature negotiation.

Evidence: After Blur's optional enforcement, creator royalties on major collections like Bored Ape Yacht Club dropped by over 60%. Marketplaces that enforce royalties lose volume to those that don't, creating a race to the bottom.

Opt-in royalties externalize costs. The free-market argument ignores that creators bear the cost of building a collection's value, while marketplaces like Blur and OpenSea capture the liquidity. This creates a classic tragedy of the commons where no single actor is incentivized to pay for the public good of creator sustainability.

Royalties are a protocol-level parameter. Treating them as a marketplace feature, like a trading fee, is a category error. The correct analogy is a network's base fee or a token's inflation schedule—core economic rules enforced by the protocol itself, not left to downstream rent-seekers.

The market has already failed. The race to zero fees on platforms like LooksRare and Sudoswap demonstrates that in a commodity liquidity market, the dominant strategy is to defect. This is not efficient competition; it's a prisoner's dilemma that destroys the primary value source.

Evidence: Creator earnings on Ethereum NFTs plummeted over 90% post the 'optional' shift, while marketplace volumes became concentrated on the lowest-fee venues. This proves the equilibrium is extractive, not generative.

Opt-in is a governance failure. It outsources a core protocol policy to application developers, creating a fragmented and unpredictable ecosystem. This is a failure of collective action, not a feature.

The correct solution is protocol-level enforcement. A standard like ERC-721C or a marketplace-level policy like Blur's Creator Earnings model demonstrates that royalty enforcement is technically trivial. The barrier is political, not technological.

The precedent is catastrophic for other fees. If creators cannot enforce a 5% fee, what prevents Uniswap LP fees or EigenLayer restaking rewards from becoming opt-in? The credible commitment of on-chain economics collapses.

Evidence: After Blur's optional model, creator royalties on major collections like Bored Ape Yacht Club fell by over 60%. This is a direct transfer of value from creators to traders and arbitrageurs, undermining the stated value proposition of NFTs.