Why Smart Contracts Are the Only Viable Royalty Enforcers

Royalty enforcement is a consensus problem. A single non-compliant marketplace creates a race to the bottom, as seen with Blur and OpenSea's fee wars. On-chain logic is the only mechanism that creates a universal settlement layer for creator fees.

Smart contracts are settlement layer logic. Unlike platform-level policies, code executes deterministically across all interfaces. This shifts enforcement from trust in operators (like Magic Eden) to trust in Ethereum's state transition function.

ERC-721C and ERC-2981 are the standards. ERC-721C enables on-chain allowlists and programmable royalties, while ERC-2981 provides a standard interface. Protocols like Manifold and 0xSplits implement these to make fees non-negotiable.

Evidence: Collections using ERC-721C, like Forgotten Runes, maintain ~95% royalty compliance across all marketplaces, while non-enforced collections often see rates below 20% on secondary platforms.

Royalties are a protocol-level problem. Marketplaces like Blur and OpenSea are intermediaries; their off-chain policies are a temporary truce, not a permanent solution. Enforcement must be baked into the NFT standard itself, as seen with ERC-721C, or the contract's mint logic.

Smart contracts are the only credible commitment. A contract's code is a Schelling point that all marketplaces must respect, eliminating the prisoner's dilemma. This is why creator-owned marketplaces like Zora succeed—their entire stack is aligned with the creator's economic terms.

Evidence: Look at the data. Collections with hard-coded on-chain royalties (e.g., Art Blocks) maintain near-100% fee capture, while those relying on marketplace goodwill see it plummet to sub-10% during competitive phases.

Marketplace Centralization Failed. Platforms like OpenSea attempted centralized enforcement, creating a single point of failure and censorship. This model collapsed when competitors like Blur offered zero-fee trading, forcing a race to the bottom on creator fees.

Registry Standards Were Gamed. Token-gating standards like EIP-2981 rely on voluntary marketplace compliance. Aggregators and alternative marketplaces simply ignore the registry, making royalties optional and unenforceable.

Social Enforcement Is Ineffective. Creator blocklists and community shaming are manually intensive and easily circumvented. Projects like y00ts attempted this, but traders migrated to non-compliant venues, proving social pressure lacks economic teeth.

Evidence: The Blur Effect. When Blur's optional royalty model launched, creator royalty payments on major collections plummeted by over 80%. This single event demonstrated that any system relying on third-party goodwill is architecturally doomed.

On-chain execution is non-negotiable. Royalty logic embedded in an NFT's smart contract executes atomically with the transfer, making payment a condition of state change. Off-chain agreements rely on marketplace goodwill, which evaporates during bear markets as seen with OpenSea's optional royalty policy.

The ERC-2981 standard is the baseline. This token standard bakes a royalty receiver and fee into the contract itself, creating a portable on-chain record. Marketplaces like Blur and LooksRare that bypass it must implement custom, fragile off-chain logic that fragments the ecosystem.

Enforcement requires settlement control. A truly trustless system must own the final settlement, which only the protocol-level contract possesses. Layer 2 solutions like Zora's protocol fees or Manifold's Royalty Registry act as decentralized enforcers by intercepting trades at the network level.

Evidence: After OpenSea made royalties optional, collections using enforceable ERC-2981 on Zora maintained ~95% royalty compliance, while optional collections on blended marketplaces saw rates collapse below 20%.

Liquidity follows enforcement, not fees. Marketplaces like Blur and Magic Eden prove that high-volume liquidity aggregates where creator royalties are optional. This creates a classic race-to-the-bottom, where the only sustainable enforcement is at the protocol layer via smart contract logic.

Royalties are a protocol-level feature. Treating them as a marketplace-level policy is like expecting Uniswap to enforce a fee on every token transfer; it is architecturally impossible. The ERC-721C standard demonstrates that enforcement must be hardcoded into the asset's transfer function.

Evidence: On Solana, where programmability is limited, Magic Eden's optional royalties led to immediate 0% fee listings. On Ethereum, collections with EIP-2981 and custom transfer hooks maintain royalties regardless of the marketplace used.

Smart contracts are the enforcement layer. Marketplaces like OpenSea and Blur rely on voluntary compliance, which fails during market downturns or competitive pressure. Only immutable code guarantees payment execution.

Royalties must be a primitive. Treating royalties as a feature of individual marketplaces is a design flaw. They must be a native protocol-level function, akin to gas fees in Ethereum or slashing in Cosmos.

ERC-721C is the current standard. This token standard, pioneered by Limit Break, enables on-chain allowlists for marketplaces that respect royalties. It shifts enforcement from policy to cryptographic proof.

Evidence: After Blur's optional royalties, creator payouts on major collections fell over 90%. Protocols with hard-coded royalties, like Art Blocks, maintained 100% collection rates, proving the model.