Protocol-Level Royalties (EIP-2981) vs Application-Level Royalties

Protocol-Level Royalties (EIP-2981) excel at providing a universal, non-negotiable standard for creator revenue. By embedding royalty logic directly into the NFT smart contract (e.g., on Ethereum or Polygon), it ensures fees are paid on every secondary sale across all marketplaces that respect the standard, like OpenSea and Blur. This creates a predictable, enforceable revenue stream for game developers and asset creators, crucial for sustainable in-game economies. The adoption metric is clear: over 1.5 million NFT collections have implemented EIP-2981, demonstrating its role as a foundational layer for creator monetization.

Application-Level Royalties take a different approach by delegating enforcement to the marketplace or game's own application logic. This strategy, used by platforms like Magic Eden (Solana) or custom game engines, offers superior flexibility. Developers can implement dynamic royalty rates, whitelist specific trading pairs, or create complex fee-sharing models tailored to their game's tokenomics. However, this results in a critical trade-off: enforcement is fragmented and relies on the goodwill and integration of each individual platform, creating potential revenue leakage on non-compliant marketplaces.

The key trade-off: If your priority is maximizing enforcement and guaranteeing revenue across a fragmented marketplace landscape, the immutable guarantee of a protocol standard like EIP-2981 is superior. If you prioritize flexibility and complex, game-specific economic models and can control the primary trading environment (e.g., a proprietary game marketplace), application-level logic provides the necessary customization. For most CTOs, the decision hinges on whether universal compliance or bespoke economic design is the higher strategic priority for their game's long-term economy.

Protocol-Level Royalties (EIP-2981) excel at enforcement and composability because the royalty logic is embedded in the token standard itself. This creates a predictable, on-chain revenue stream that is automatically respected by compliant marketplaces like OpenSea and Blur, which together represent over 90% of NFT trading volume. This standardization reduces integration friction for new platforms and protects creator revenue by design, as seen with the widespread adoption in major collections like Bored Ape Yacht Club and Azuki.

Application-Level Royalties take a different approach by delegating enforcement to the marketplace or smart contract layer. This results in greater flexibility and control for the application, allowing for dynamic fee structures, promotional periods with waived royalties, or complex multi-party splits. However, this comes with the trade-off of fragmentation and optionality; revenue can be circumvented on non-compliant platforms, as evidenced by the 'royalty wars' of 2022-2023 where marketplaces competed by offering zero-fee trading to attract volume.

The key trade-off: If your priority is guaranteed creator payouts, ecosystem standardization, and reducing integration overhead, choose EIP-2981. It is the de facto standard for reliable, long-term revenue. If you prioritize maximum application control, experimental business models, or operate in a closed/vertical ecosystem where you control all distribution, choose Application-Level Royalties. For most public, permissionless projects seeking sustainable creator economies, the protocol-level approach offers the stronger, more defensible foundation.