Why On-Chain Logic is the Only Future for Complex Royalty Schemes

Relying on a single entity (e.g., a marketplace) to calculate and distribute royalties creates a single point of failure and censorship. This model is antithetical to Web3's trust-minimized ethos.

• Centralized Logic: Royalty rules are hidden in private servers, not transparent smart contracts.
• Censorship Risk: The enforcer can unilaterally change terms or blacklist creators.
• Market Fragmentation: Each marketplace (OpenSea, Blur) implements its own opaque policy, creating chaos.

Without logic embedded in the asset's smart contract, royalties are optional and easily bypassed via alternative trading venues or direct peer-to-peer transfers.

• Marketplace Arbitrage: Traders migrate to platforms with lower or zero royalty enforcement (e.g., Blur vs. OpenSea wars).
• Direct Transfer Bypass: Assets can be sold OTC or via NFT-aggregators like Gem without triggering payment logic.
• Economic Impact: Creator revenue can drop by >80% when optional royalties are introduced.

Off-chain systems cannot interoperate with DeFi, cross-chain bridges, or new market mechanics, locking assets in walled gardens. Upgrading the logic requires coercing all marketplaces to comply.

• Broken Composability: Royalties fail when NFTs are used as collateral in Aave or traded via Uniswap pools.
• Upgrade Hell: Changing a fee requires a new social consensus across all off-chain operators, not a single contract deploy.
• Future-Proofing: Complex schemes (e.g., time-decaying fees, dynamic splits) are impossible to enforce off-chain.

Replaces the static ERC-721 with a modular, upgradeable contract where creators own the logic. This shifts power from marketplaces back to artists.

• Creator-Controlled Splits: Enforceable, on-chain splits to collaborators, DAOs, or charities.
• Dynamic Logic: Royalty rules can be updated post-mint without breaking provenance.
• Gas-Optimized: Uses EIP-2981 for universal compatibility while enabling advanced features.

ERC-721/1155 contracts are frozen at deployment. Real-world royalty schemes (sliding scales, time-based rates, affiliate rewards) require dynamic logic that marketplaces cannot reliably interpret off-chain.

• Brittle Systems: Reliance on centralized marketplace "goodwill" leads to ~90% royalty non-payment on optional platforms.
• Zero Composability: Cannot integrate with DeFi, lending protocols, or on-chain attribution without standardized on-chain hooks.

Treating royalties as a core blockchain primitive, not a marketplace feature, enables trust-minimized, automatic execution. This mirrors the evolution from OTC to Automated Market Makers.

• Universal Settlement Layer: Any marketplace or aggregator (OpenSea, Blur, Uniswap) becomes a compliant front-end.
• Programmable Cash Flows: Enables royalty-backed financing and yield generation from future revenue streams.
• Auditable & Immutable: Rules are transparent and cannot be unilaterally changed post-agreement.

A minimal, gas-efficient protocol for splitting any on-chain payment. It's the critical settlement infrastructure for complex royalty waterfalls.

• Real-Time Streaming: Enables continuous micro-royalty distributions instead of batch payments.
• Permissionless & Cheap: ~80k gas for a distribution, making it viable for high-volume secondary markets.
• Forkable Logic: Teams like Sound.xyz and Zora use it as a core primitive for their creator ecosystems.

Off-chain enforcement creates a race to the bottom where marketplaces like Blur and OpenSea compete on bypassing creator fees. This leads to:

• Ineffective Filters: Blocking marketplaces is a blunt tool that harms discoverability.
• Value Leakage: An estimated $100M+ in royalties were lost in 2023 alone due to optional enforcement.
• Centralized Control: Creators are at the mercy of private corporate policies.

Embedding logic in the asset itself (e.g., ERC-2981, ERC-7579) makes royalties a protocol-level property, not a policy.

• Universal Enforcement: Fees are paid on any compliant exchange, from Uniswap to a bespoke OTC contract.
• Programmable Splits: Enable complex, real-time distributions to DAOs, co-creators, or dynamic charity allocations.
• Auditability: Every fee payment is a transparent, on-chain event, verifiable by anyone.

The rise of ERC-4337 Account Abstraction and ERC-7579 Modular Accounts enables royalty logic to live in the user's wallet, not the NFT contract.

• Post-Transaction Hooks: Automatically execute fee payments and splits after any transfer.
• Modular Upgrades: Royalty schemes can be updated without migrating the entire collection.
• Gas Abstraction: Protocols like Biconomy or Stackup can sponsor these transactions, removing UX friction.

Complex, multi-party value flows are a solved problem in DeFi. Protocols like Uniswap, Aave, and Compound automatically route fees and incentives on-chain.

• Automated Market Makers (AMMs): Prove that billions in fees can be distributed trustlessly.
• Money Legos: Royalty modules can compose with lending, staking, and indexing protocols.
• Predictable Economics: On-chain logic removes the uncertainty of off-chain policy changes.

On-chain logic unlocks revenue streams impossible with static, off-chain schemes.

• Dynamic Pricing: Royalty rates that adjust based on secondary sale price or holder duration.
• Loyalty Rewards: Automatically airdrop new assets or tokens to long-term holders from collected fees.
• Cross-Chain Royalties: Use intents and interoperability layers like LayerZero or Axelar to enforce fees across any chain.

The winning infrastructure will be the most composable, not the most restrictive. This is the lesson from Ethereum and Cosmos.

• Standard Interfaces: Adopt EIPs that allow any marketplace or wallet to interact seamlessly.
• Avoid Walled Gardens: Proprietary systems (e.g., some Solana methods) limit long-term growth.
• Investor Takeaway: Back protocols that treat royalties as a primitive, not a feature.