On-Chain vs Off-Chain NFT Royalty Enforcement: Fee Sustainability

Guaranteed Fee Capture: Royalty logic is embedded in the smart contract (e.g., ERC-2981, Manifold's Royalty Registry). Fees are non-optional and paid atomically with the sale. This matters for protocols requiring predictable, guaranteed creator revenue like Art Blocks or high-value generative art collections.

Higher Gas Costs & Complexity: Every transfer incurs gas to check and enforce royalties, increasing costs for users. Complex logic can create upgradeability challenges. This matters for high-volume, low-value trading ecosystems where gas sensitivity can kill secondary market liquidity.

Marketplace-Dependent Flexibility: Enforcement relies on marketplace policy (e.g., OpenSea, Blur's optional royalties). Allows for experimental fee models and rapid iteration without contract redeploys. This matters for new platforms testing novel economic models or communities voting on royalty rates.

Fragile & Optional Revenue: Royalties are a policy, not a rule. Can be bypassed via alternative marketplaces or direct swaps (e.g., Sudoswap). Leads to revenue leakage and unsustainable creator economics. This matters for independent artists and long-tail collections who rely on secondary sales for ongoing funding.

Enforcement by consensus: Royalty logic is embedded in the NFT smart contract (e.g., EIP-2981, ERC-721C). Marketplaces like Blur and OpenSea must respect it to interact with the asset. This ensures 100% fee capture on all compliant sales, creating a predictable, self-sustaining revenue stream for creators.

Increased gas overhead: Storing and executing royalty logic on-chain (e.g., complex splitter contracts) increases minting and secondary sale gas fees. For high-volume collections on Ethereum, this can add $5-$15+ per transaction, potentially deterring users and reducing overall trading volume, which is the fee base.

Minimal on-chain footprint: Royalty terms are stored off-chain (e.g., in metadata JSON) and enforced via marketplace policy. This keeps mint and trade gas fees near baseline, optimizing for high-frequency trading on platforms like Tensor. Lower fees can increase volume by 15-30%, indirectly supporting fee sustainability through scale.

Policy-based, not protocol-based: Sustainability hinges on marketplace cooperation. Major platforms like OpenSea have opted out of enforcement for non-royalty-enforced collections. This creates a 'race to the bottom' where fee-free marketplaces gain volume, destroying the creator revenue model entirely.

Guaranteed revenue stream: Royalties are enforced directly by the NFT contract (e.g., ERC-721) or marketplace protocol (e.g., Seaport with on-chain policy). This creates a sustainable, trustless fee model for creators on platforms like OpenSea Pro and Blur that honor it. It matters for high-value collections where creator income must be contractually assured.

Immutable payment logic: Royalty rates and recipient addresses are baked into the smart contract, visible on-chain via explorers like Etherscan. This prevents post-mint manipulation and provides clear, auditable economics for projects like Bored Ape Yacht Club. It matters for institutional NFT holders and creators building long-term brands.

Vulnerable to marketplace opt-out: Major marketplaces (e.g., Blur, SudoSwap) can implement custom sale contracts that bypass on-chain enforcement, fragmenting the ecosystem. This forces creators to blacklist non-compliant platforms, reducing liquidity. It matters for projects seeking maximum secondary market exposure without restrictive allowlists.

Hard to modify post-deployment: Changing royalty parameters (e.g., splitting funds, adjusting percentages) requires complex migration or new contract deployment, disrupting holder experience. Standards like EIP-2981 allow off-chain logic (via OpenSea's registry) to be updated. It matters for DAO-governed projects or those needing adaptive revenue models.

Dynamic royalty management: The royaltyInfo function can point to an off-chain registry (e.g., Manifold's Royalty Registry) allowing updates without contract redeployment. This enables complex splits, programmatic rules, and compatibility across all EIP-2981 supporting marketplaces like LooksRare. It matters for creators who need future-proof, adaptable business logic.

Optional enforcement standard: EIP-2981 is a signal, not an enforcement mechanism. Marketplaces can read the data but choose to ignore it, as seen in the 2022-23 royalty wars. Sustainability depends on platform policy, not code. It matters for creators who prioritize guaranteed payments over maximum marketplace reach.