On-chain enforcement is impossible on a permissionless secondary market. The EIP-2981 standard is a suggestion, not a rule, and marketplaces like Blur and OpenSea have proven they will bypass it for volume.
dao-governance-lessons-from-the-frontlines
Blog
The Future of NFT Royalties: A DAO Governance Battleground
The naive era of protocol-mandated royalties is over. Enforcement is shifting to a complex, high-overhead model of DAO-curated allowlists and legal frameworks, turning governance into a critical cost center and strategic weapon.
introduction
THE MARKET REALITY
Introduction: The Royalty Enforcement Lie is Dead
On-chain royalty enforcement has failed, shifting the battle to DAO governance and economic design.
The new battleground is governance. Projects like Yuga Labs now use DAO-controlled treasuries and airdrops to reward loyal holders, making royalties a discretionary community incentive, not a technical mandate.
Royalties are now a tax on liquidity. This creates a direct conflict between creators seeking sustainable funding and traders demanding efficient markets, a tension that Blur's marketplace model exploits for dominance.
Evidence: Creator earnings on OpenSea fell over 90% after its optional royalty policy, while Blur captured ~80% of NFT volume by prioritizing trader economics over creator fees.
thesis-statement
THE GOVERNANCE SHIFT
Thesis: From Protocol Mandate to DAO-Managed Pressure
The future of creator royalties is a governance battle where DAOs, not protocol rules, enforce cultural and economic norms.
Protocol-level enforcement is dead. Marketplaces like Blur and OpenSea abandoned mandatory royalties to capture volume, proving that code is not law when economic incentives misalign. The EIP-2981 standard is a technical suggestion, not a technical mandate.
DAOs become the enforcement layer. Projects like Yuga Labs and Art Blocks now use their DAO treasuries and community power to blacklist non-compliant marketplaces. This shifts the battleground from smart contract logic to social and economic pressure.
The new model is opt-in integrity. Platforms that honor royalties, like Zora and Foundation, compete on creator alignment, not just liquidity. This creates a two-tier market system where royalty policies signal a platform's cultural values.
Evidence: After OpenSea's optional royalty shift, creator earnings on secondary sales dropped over 50% on average, forcing top-tier collections to adopt aggressive DAO-led whitelisting strategies for survival.
key-trends
A DAO GOVERNANCE BATTLEGROUND
Key Trends Defining the New Royalty Landscape
Royalties are no longer a protocol feature but a governance weapon, forcing creators and collectors to pick sides in a war over value capture.
01
The Problem: Blur's Race to the Bottom
Marketplaces like Blur weaponized optional royalties to capture volume, collapsing creator revenue by >90% on major collections. This created a prisoner's dilemma where liquidity follows the lowest fee.
- Forced a Hard Fork: Creators must now choose between liquidity (Blur) or royalties (OpenSea).
- Eroded Trust: The social contract of perpetual royalties was broken by pure financialization.
- Created a Zero-Sum Game: Value accrues to traders and LPs, not the original artists or communities.
>90%
Revenue Drop
$10B+
Volume at Stake
02
The Solution: On-Chain Enforcement via EIP-2981 & ERC-721C
New technical standards move royalty logic from marketplaces to the smart contract itself, making fees non-optional and programmable.
- EIP-2981: A universal royalty standard for any NFT, enabling on-chain fee routing.
- ERC-721C (Manifold): Allows creators to whitelist/blacklist marketplaces and set custom rules per sale (e.g., 0% on primary, 10% on secondary).
- Shifts Power: Control moves from centralized marketplace policy to decentralized, immutable code deployed by the DAO.
100%
Enforcement
DAO-Controlled
Rule Setting
03
The Battleground: DAO Treasury vs. Creator Wallet
Royalties are becoming a primary funding mechanism for DAOs, creating tension between collective sustainability and individual artist payouts.
- Protocol-Owned Royalties: Projects like Yuga Labs route fees to the DAO treasury to fund development, not directly to creators.
- Splits & Automation: Tools like 0xSplits and Royalty Registry enable complex, real-time revenue distribution between artists, collaborators, and the treasury.
- Governance Capture Risk: The largest token holders (often speculators) now vote on how creator revenue is spent.
Majority
DAO-Controlled
Real-Time
Splits
04
The Endgame: Royalties as a Protocol Service
Royalty enforcement is becoming a modular infrastructure layer, abstracted away from individual collections and monetized by new protocols.
- Modular Stacks: Protocols like Manifold and Highlight offer royalty enforcement as a service for any NFT collection.
- Revenue Streams: These protocols take a cut of the royalties they enforce, creating a fee-for-service model.
- Network Effects: The protocol with the most integrated collections becomes the de facto standard, wielding significant governance power over the entire ecosystem's cash flows.
Infra Layer
Abstraction
Fee-for-Service
New Business Model
ENFORCEMENT MECHANISMS
Marketplace Royalty Policy Snapshot: A Fragmented Battlefield
A comparison of dominant royalty enforcement models, their technical implementations, and market adoption.
| Key Feature | On-Chain Enforcement (e.g., EIP-2981) | Marketplace-Optional (e.g., OpenSea) | Creator-Governed (e.g., ZORA, Manifold) |
|---|---|---|---|
Primary Enforcement Layer | Smart Contract / Protocol | Marketplace Policy | Creator Tooling / Registry |
Royalty Payment Guarantee | |||
Requires Marketplace Cooperation | |||
Standard Used | EIP-2981 | Proprietary Filter | Creator-owned Registry |
Royalty Bypass Risk | Low (Technical) | High (Policy) | Medium (Adoption) |
Primary Advocate | Art Blocks, 0xmons | Blur, LooksRare | ZORA DAO, Manifold |
Typical Fee for Enforcement | 0% | 0% | 0.000777 ETH (ZORA) |
Governance Control | Protocol Developers | Marketplace Operators | Creator / DAO |
deep-dive
THE MECHANISM
Deep Dive: The Anatomy of DAO-Led Enforcement
DAOs enforce royalties by controlling the on-chain infrastructure that validates and routes NFT transactions.
Royalty enforcement is an infrastructure problem. Marketplaces like Blur and OpenSea cannot be trusted as single points of control. A DAO-led enforcement layer must own the canonical registry and settlement logic, making compliance a protocol-level requirement, not an optional policy.
The registry is the root of trust. Projects like Manifold's Royalty Registry and 0xSplits establish a single source of truth for fee settings. A DAO governs updates to this registry, preventing unilateral changes by creators or marketplaces and creating a credibly neutral standard.
Enforcement requires transaction-level control. This is achieved by integrating the registry into core transfer logic via EIP-2981 or by acting as a transaction router. Protocols like Zora's new minting tools and Reservoir's fill APIs demonstrate this model, where the DAO's rules are executed before a trade settles.
The battleground is liquidity aggregation. A DAO that controls the primary liquidity endpoint, similar to how UniswapX routes intents, can mandate royalty payment. Marketplaces that bypass the DAO's settlement layer lose access to aggregated liquidity, creating a powerful economic disincentive for non-compliance.
risk-analysis
THE FUTURE OF NFT ROYALTIES
The Governance Overhead: Risks & Unintended Consequences
The enforcement of creator royalties has devolved into a contentious governance battle, pitting creator rights against marketplace liquidity and user experience.
01
The Blur Effect: Liquidity at All Costs
Blur's zero-fee, optional-royalty model forced a race to the bottom, collapsing the ~$1.8B annual royalty market. Their token-based incentive system weaponizes liquidity, making enforcement a competitive disadvantage.\n- Market Share Capture: Forced OpenSea to abandon mandatory royalties.\n- Creator Exodus: Top-tier artists migrate to platforms with enforceable terms.
~90%
Market Share
-95%
Royalty Revenue
02
The On-Chain Enforcement Trap
Solutions like EIP-2981 or custom transfer logic (e.g., Art Blocks) add complexity and gas overhead, creating friction that users bypass via alternative marketplaces. This fragments liquidity and creates a two-tier market system.\n- Technical Debt: Custom hooks increase contract vulnerability surface.\n- Liquidity Fragmentation: Enforced collections see ~40% lower volume on secondary markets.
+30%
Gas Cost
2-Tier
Market Split
03
DAO Governance Paralysis
Protocol DAOs (e.g., ApeCoin DAO) are ill-equipped to adjudicate royalty policy, leading to politicized debates and voter apathy. Treasury management for royalty distribution creates massive operational overhead for volunteer contributors.\n- Low Participation: Critical votes often see <5% tokenholder turnout.\n- Funds Mismanagement: Manual payouts are prone to error and fraud.
<5%
Voter Turnout
High
Op Risk
04
The Layer 2 Escalation
Royalty policy becomes a core differentiator for new L2s and appchains. Zora Network and Base build creator-centric economics into their L2, using sequencer revenue to subsidize or guarantee royalties, turning infrastructure into a policy weapon.\n- Protocol-Level Capture: Economic policy is baked into the chain's DNA.\n- New Lock-in: Creators trade marketplace freedom for enforceable terms.
L2
Battleground
New Lock-in
Trade-off
05
The Legal Grey Zone
Non-enforceable on-chain terms may still be enforceable off-chain, inviting selective litigation. Projects like Yuga Labs have sent cease-and-desists, testing the legal standing of smart contract code as a binding agreement.\n- Regulatory Risk: Invites scrutiny from bodies like the SEC on securities-like promises.\n- Chilling Effect: Lawsuits deter marketplace innovation.
High
Legal Risk
Selective
Enforcement
06
Solution: Programmable Royalty Treasuries
The endgame is abstracting royalty logic into standalone, programmable treasury contracts (like 0xSplits). Royalties become a streaming claimable asset managed by the creator's DAO, decoupled from marketplace compliance.\n- Market Agnostic: Works across any platform, removing the enforcement burden.\n- Automated Operations: Enables instant splits, vesting, and reinvestment strategies.
Decoupled
Architecture
Automated
Ops
future-outlook
THE BATTLEFIELD
Future Outlook: Specialized Infra and Legal Precedents
The future of NFT royalties will be determined by a clash between specialized on-chain enforcement infrastructure and evolving legal interpretations of creator rights.
Enforcement shifts on-chain. The market will abandon centralized, platform-level enforcement for programmable royalty modules embedded in smart contracts. Projects like Manifold's Royalty Registry and 0xSplits provide the technical substrate for this, allowing creators to define and update fee logic post-mint.
Royalties become a governance token. The fight moves to DAO-controlled marketplaces like Zora and Blur, where token holders vote on fee policies. This creates a direct economic conflict between creators (pro-royalty) and traders/collectors (anti-royalty) over platform revenue streams.
Legal precedent is inevitable. A major artist or label will sue a marketplace for facilitating secondary sales without honoring creator-set terms. The outcome hinges on whether smart contract code constitutes a binding sale agreement under existing copyright or contract law.
Evidence: The 2023 shift saw royalty-paying volume on OpenSea drop below 20% after Blur's optional model, proving that without enforceable code, social consensus fails.
takeaways
THE FUTURE OF NFT ROYALTIES
Takeaways for Builders and Investors
Royalty enforcement is shifting from marketplaces to smart contract design and DAO governance, creating new infrastructure opportunities.
01
The Problem: Marketplace Fragmentation Killed Optional Royalties
Blur's zero-fee model forced a race to the bottom, making royalties optional on major platforms like OpenSea. This broke the creator economy model for ~$2B+ in annual secondary sales.\n- Result: Creator revenue became dependent on goodwill, not code.\n- Opportunity: New primitives are needed to enforce payments at the protocol layer.
~$2B+
Annual Sales At Risk
>90%
Optional on Major DEXs
02
The Solution: On-Chain Enforcement via Transfer Hooks
Protocols like Manifold's Royalty Registry and EIP-2981 enable royalty logic within the NFT contract itself. This shifts power from marketplaces back to creators.\n- Mechanism: A transferHook can block sales or divert fees unless royalty is paid.\n- Trade-off: Increases gas costs and can limit liquidity if too restrictive.
EIP-2981
Standard
+15-30%
Gas Overhead
03
The Battleground: DAOs as Royalty Governors
For collection DAOs (e.g., Yuga Labs, Art Blocks), royalty policy is a core governance lever. This creates a market for Snapshot-like voting tools with on-chain execution.\n- Use Case: DAOs vote to adjust royalty rates or blacklist non-compliant marketplaces.\n- Infrastructure Need: Secure, gas-efficient governance modules that interface with royalty registries.
Key DAOs
Yuga, Art Blocks
Governance
New Vertical
04
The Investor Lens: Royalties as Protocol Revenue
Treat royalty-enforcing infrastructure as a fee-generating protocol. Successful solutions capture a small cut of enforced royalties, creating a sustainable business model.\n- Analogies: Think Uniswap for swaps, but for creator fees.\n- Metric to Watch: Total Value Protected (TVP), not just TVL.
TVP > TVL
Key Metric
1-5%
Protocol Fee Take
05
The Builder Play: Modular Royalty Stacks
No single solution will win. Build modular components: registries, oracle price feeds for valuation, and settlement layers. Integrate with Cross-Chain bridges like LayerZero and intent-based systems like UniswapX.\n- Example Stack: Registry (Manifold) + Price Feed (Chainlink) + Cross-Chain Messaging.\n- Goal: Make royalties a seamless, cross-chain default.
Modular
Architecture
Cross-Chain
Imperative
06
The Endgame: Social Consensus Over Code
Long-term, the most valuable collections will enforce royalties through social consensus and brand power, not just code. The tech ensures credible commitment, but community loyalty ensures compliance.\n- Reality: Top-tier projects can dictate terms to marketplaces.\n- Takeaway: Invest in tools that strengthen creator-community bonds, not just payment rails.
Brand > Code
Ultimate Lever
Community
Enforcement
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