Royalties are a policy choice, not a technical default. The EVM's native transfer function lacks a built-in royalty mechanism, forcing reliance on optional marketplace compliance.
legal-tech-smart-contracts-and-the-law
Blog
The Future of Royalty Agreements: Transparent and Automatic
An analysis of how embedding royalty logic in smart contracts eliminates intermediaries, prevents evasion, and creates a new paradigm for enforceable digital agreements. We examine the tech, the protocols leading the charge, and the remaining challenges.
introduction
THE ENFORCEMENT
The Royalty Lie
On-chain royalty agreements are unenforceable without explicit protocol-level design, rendering most existing promises worthless.
Marketplaces are not fiduciaries. Platforms like Blur and OpenSea optimize for liquidity, not creator revenue. They will disable enforcement to win volume wars, as history proves.
The solution is protocol-level enforcement. Standards like ERC-2981 define a royalty interface, but only protocols like Manifold's Royalty Registry or 0xSplits that bake logic into minting and transfer hooks create real guarantees.
Evidence: After OpenSea's optional enforcement, creator royalties on major collections like Bored Ape Yacht Club fell by over 60% on competing marketplaces, demonstrating the fragility of social consensus.
thesis-statement
THE AUTOMATED ENFORCEMENT
Code is the Only Contract That Can't Renegotiate
Smart contracts are creating a new paradigm for royalty agreements by making them transparent, automatic, and immutable.
Royalty enforcement is a technical problem. Traditional legal contracts rely on manual compliance and costly litigation. A smart contract executes logic deterministically, ensuring creators receive their programmed share on every secondary sale without requiring trust in a marketplace's goodwill.
On-chain provenance is the prerequisite. Protocols like EIP-2981 and ERC-721C provide a standard interface for royalty information, allowing any compliant marketplace to read and enforce terms. This moves the burden from platform policy to protocol-level logic.
The market is choosing code over policy. The failure of optional royalties on platforms like Blur and OpenSea demonstrates that market competition destroys soft enforcement. Projects like Manifold's Royalty Registry and 0xSplits are building the infrastructure for hard-coded, unbreakable payment streams.
Evidence: On Ethereum mainnet, over 1.2 million NFTs now implement EIP-2981, creating a machine-readable royalty layer that outlives any single marketplace's business model.
key-trends
FROM MANUAL TO AUTOMATIC
Three Trends Defining On-Chain Royalties
Legacy royalty systems are broken. The future is transparent, programmable, and enforced by code, not lawyers.
01
The Problem: Opaque, Manual Splits
Off-chain agreements and manual payment rails create trust issues and administrative overhead. Artists wait months for payments that are often incomplete.
- Manual Reconciliation: Requires spreadsheets, invoices, and constant chasing.
- Lack of Transparency: Creators cannot audit revenue streams in real-time.
- High Friction: ~30-60 day payment cycles are standard, stifling cash flow.
30-60d
Payment Lag
>15%
Revenue Leakage
02
The Solution: Programmable Revenue Splits
Smart contracts automate and enforce royalty distribution atomically upon payment. Projects like Manifold's Royalty Registry and 0xSplits set the standard.
- Atomic Execution: Payment and split occur in one transaction, eliminating delay.
- Transparent Ledger: Every split is verifiable on-chain in real-time.
- Composable Logic: Enable complex logic (e.g., time-based vesting, tiered shares) without intermediaries.
~0s
Settlement Time
100%
Auditable
03
The Evolution: Royalties as a Primitives
Royalty logic is becoming a modular primitive embedded into broader financial and social stacks, from NFT marketplaces to music streaming protocols like Audius.
- Infrastructure Integration: Wallets (Rainbow, Phantom) and indexers (The Graph) natively support royalty standards like EIP-2981.
- Cross-Chain Composability: Protocols like LayerZero and Axelar enable automatic splits across ecosystems.
- New Business Models: Enables micro-royalties for derivative works and dynamic pricing based on usage.
EIP-2981
Standard
Multi-Chain
Native
THE FUTURE OF ROYALTY AGREEMENTS: TRANSPARENT AND AUTOMATIC
Royalty Enforcement: Platform Policy vs. Contract Logic
A comparison of dominant models for enforcing creator royalties, analyzing their technical implementation, security guarantees, and market impact.
| Enforcement Mechanism | Marketplace Policy (e.g., OpenSea) | On-Chain Enforcement (e.g., EIP-2981, Manifold) | Operator Filter Registry (e.g., OpenSea's 'OS') |
|---|---|---|---|
Technical Foundation | Centralized database & ToS | Immutable smart contract logic | Centralized blocklist contract |
Royalty Guarantee | |||
Secondary Market Bypass Risk | High (via alternative marketplaces) | Near-zero (enforced at contract level) | Medium (bypassable if not on blocklist) |
Creator Control Level | Low (platform dictates terms) | High (encoded at mint) | Medium (opt-in, but revocable) |
Gas Overhead for Enforcement | 0% (off-chain) | < 0.5% (on-chain fee split) | < 0.1% (extra storage check) |
Interoperability with All DEXs/Agents | |||
Primary Adopters | Blur, OpenSea (historical) | Art Blocks, Manifold, Sound.xyz | OpenSea (current), Rarible |
Long-Term Viability | Low (subject to market competition) | High (code is law) | Medium (centralized chokepoint) |
deep-dive
THE EXECUTION LAYER
Anatomy of an Unbreakable Agreement
Royalty agreements are shifting from legal promises to autonomous, on-chain code that executes without intermediaries.
On-chain logic replaces legal text. A smart contract, not a PDF, defines the payment terms, making the agreement's execution deterministic and trustless.
Programmable revenue splits are mandatory. Protocols like Manifold's Royalty Registry and 0xSplits enforce complex, multi-party distributions atomically upon sale, eliminating manual reconciliation.
The NFT is the payment rail. Standards like ERC-2981 embed royalty logic directly into the token, making enforcement a property of the asset itself across all marketplaces.
Evidence: Secondary sales on platforms honoring EIP-2981 have generated over $1.8B in automated creator payouts, demonstrating the model's viability at scale.
protocol-spotlight
THE FUTURE OF ROYALTIES
Builders on the Frontline
Legacy royalty models are broken. The next wave is on-chain, transparent, and automated.
01
The Problem: Opaque Off-Chain Accounting
Traditional platforms act as trusted intermediaries, holding and distributing creator funds with zero on-chain auditability. This creates black-box accounting, delayed payments, and counterparty risk.
- No real-time verification of revenue streams.
- Centralized clawback risk for creators.
- Manual, batch-based payouts create cash flow friction.
30-90 days
Payout Delay
$0
On-Chain Proof
02
The Solution: Programmable Revenue Splits
Smart contracts encode royalty logic directly into the asset, enabling automatic, trustless distribution upon any sale or secondary transaction. This is the foundation for platforms like Manifold and Zora.
- Atomic splits to creators, co-creators, and DAOs.
- Immutable terms enforced by code, not policy.
- Real-time, transparent settlement on every trade.
100%
Auto-Enforced
<1 block
Settlement
03
The Evolution: On-Chain Attribution & Layer 2s
Royalty logic must scale and remain cost-effective. EIP-2981 provides a standard NFT royalty interface, while Layer 2 rollups (Arbitrum, Optimism, Base) make micro-royalty transactions viable.
- Standardized interoperability across marketplaces.
- Sub-cent transaction fees enable new micro-royalty models.
- Cross-chain attribution via protocols like LayerZero.
~$0.001
L2 Tx Cost
EIP-2981
Standard
04
The Frontier: Dynamic & Conditional Royalties
Static percentages are primitive. Future agreements will be stateful, adjusting based on holder duration, secondary sale volume, or DAO governance votes—enabled by oracles (Chainlink) and account abstraction.
- Time-decaying rates to incentivize long-term holding.
- Volume-tiered splits that reward liquidity.
- DAO-governed parameters for collective IP.
Dynamic
Logic
Oracles
Data Feed
05
The Hurdle: Marketplace Non-Compliance
Optional royalty enforcement by major marketplaces (Blur, OpenSea) has been a critical failure. The solution is moving enforcement to the smart contract level or using protocol-level filters.
- Creator-owned marketplaces bypass aggregators.
- Transfer hooks that block non-compliant sales.
- Blocklist enforcement at the protocol layer.
~0%
Blur Royalties
Transfer Hooks
Solution
06
The Endgame: Royalties as a Primitive
Royalties will become a composable DeFi primitive. Imagine royalty streaming via Superfluid, royalty-backed lending on NFTfi, or royalty futures traded on prediction markets.
- Securitized cash flows for upfront capital.
- Composable financialization of creative work.
- Universal revenue abstraction across all digital assets.
DeFi x IP
Convergence
Cash Flow
As Collateral
counter-argument
THE REALITY CHECK
The Limits of Code: Why This Isn't a Panacea
Smart contract enforcement solves mechanics, not the underlying commercial and legal fragility of royalty agreements.
Smart contracts are not law. They automate payment flows via protocols like EIP-2981 or Manifold's Royalty Registry, but they cannot adjudicate disputes over IP ownership or interpret ambiguous contract terms. The code executes the 'how', not the 'why'.
Oracle dependency creates centralization risk. Automated systems require off-chain data feeds for sales events on platforms like OpenSea or Blur. This reintroduces a trusted third-party, creating a single point of failure and manipulation for the entire payment rail.
The legal wrapper is non-negotiable. A Ricardian contract pairing on-chain logic with off-chain legal prose is essential. Without it, creators have no recourse for breaches that code cannot see, such as trademark infringement or unauthorized derivative works.
risk-analysis
FATAL FLAWS
The Bear Case: What Could Derail Adoption?
Transparent, automatic royalties are an elegant technical solution, but adoption is a political and economic battle. Here are the primary vectors of failure.
01
The Liquidity Trap: Marketplaces Will Fork
The core economic conflict: marketplaces profit from fees, creators from royalties. If a major marketplace like Blur or OpenSea forks a popular NFT collection to remove royalties, it creates a liquidity vacuum.
- Race to the Bottom: Traders flock to the zero-royalty fork, draining volume from the canonical collection.
- Collective Action Problem: Individual creators cannot enforce terms; it requires unified, on-chain action from the entire collection.
- Historical Precedent: The 2022-23 'Royalty Wars' saw effective royalty rates on major platforms plummet from 5-10% to <0.5%.
<0.5%
Effective Rate
>90%
Volume At Risk
02
The Granularity Problem: One-Size-Fits-None
Automatic systems like EIP-2981 or ERC-721C enforce a single, static royalty scheme for all secondary sales. This fails the real-world complexity of creative IP.
- Flexibility Deficit: Cannot accommodate time-based decays, tiered collector benefits, or promotional zero-fee periods.
- Oracles Required: Dynamic terms (e.g., royalty increases if sold above a floor price) require trusted oracles, reintroducing centralization and failure points.
- Developer Friction: Integrating bespoke, per-collection logic fragments the ecosystem, increasing integration costs for aggregators and wallets.
1 Rule
Per Collection
High
Integration Cost
03
The Jurisdictional Black Hole: Legal vs. Code Law
On-chain enforcement exists in a legal gray area. A court can rule a royalty is owed, but has no power to compel a decentralized smart contract.
- Unenforceable Contracts: Traditional legal frameworks struggle with pseudonymous, global counterparties and immutable code.
- Regulatory Targeting: Aggressive enforcement could label royalty-enforcing contracts as unregistered securities or payment systems, inviting SEC or FINCEN scrutiny.
- Creator Liability: If the code fails or is gamed, creators bear the brand damage while having limited legal recourse against anonymous deployers or exploiters.
0
Legal Precedent
High
Regulatory Risk
04
The UX Dead End: Wallet Spam and Failed Transactions
Forcing royalty payments on every transfer creates a hostile user experience that breeds workarounds and kills mainstream adoption.
- Transfer Blocking: Wallets like MetaMask pop-up for micro-royalty approvals on simple social transfers or gifts, causing rejection and confusion.
- Gas Auction Warfare: Miners/validators can frontrun or censor royalty-paying transactions if a non-paying alternative exists.
- The 'Burner Wallet' Bypass: Sophisticated traders will use intermediary wallets to break the royalty trail, a tactic already prevalent in NFT wash trading.
~50%
TX Failure Rate
Common
User Workaround
future-outlook
THE FUTURE OF ROYALTY AGREEMENTS
Beyond JPEGs: The Legal Tech Primitive
Smart contracts transform static legal text into dynamic, self-executing financial logic, automating the most contentious part of creator economies.
Smart contracts encode legal logic directly into an asset's transfer mechanism. This moves royalties from a post-hoc, trust-based collection model to a pre-programmed, on-chain obligation. The EIP-2981 NFT royalty standard provides the foundational interface for this automation.
Automated enforcement eliminates collection friction. Traditional platforms must manually police secondary sales, a costly and often failed endeavor. On-chain logic, like that used by Manifold's Royalty Registry, guarantees payment upon any transfer, making non-compliance a technical impossibility.
Transparent ledgers create audit trails. Every royalty payment is a public transaction, providing creators with immutable proof of revenue flow. This transparency is a legal primitive for verifiable compliance and dispute resolution, far superior to opaque corporate reporting.
Evidence: Platforms like Zora and Sound.xyz have demonstrated 100% on-chain royalty enforcement, while marketplaces bypassing royalties see significant creator backlash and asset migration, proving the economic demand for this primitive.
takeaways
THE FUTURE OF ROYALTIES
TL;DR for Busy Builders
Legacy royalty models are broken. The future is transparent, automatic, and enforceable on-chain.
01
The Problem: Opaque & Manual Enforcement
Off-chain agreements and centralized marketplaces create black boxes. Royalty payments are manual, slow, and easily circumvented, leading to ~$100M+ in annual leakage for creators.\n- Centralized Chokepoints: Platforms like OpenSea can unilaterally change policies.\n- Fragmented Tracking: Impossible to verify cross-marketplace sales and payments.
~$100M+
Annual Leakage
30-90 days
Payment Lag
02
The Solution: Programmable Revenue Splits
Embed royalty logic directly into the asset using standards like EIP-2981 and ERC-721. Payments execute atomically upon transfer, enforced by the protocol, not the platform.\n- Atomic Composability: Integrates seamlessly with DeFi primitives like Superfluid for streaming.\n- Universal Compliance: Works across any marketplace or wallet that respects the standard.
100%
On-Chain
~0s
Settlement
03
The Evolution: Dynamic & Context-Aware Royalties
Static percentages are primitive. Next-gen systems use oracles and on-chain logic to adjust terms based on secondary market behavior, holder duration, or volume.\n- Anti-Sniping Logic: Increase fees for rapid flips, reward long-term holders.\n- Revenue Sharing DAOs: Automatically route a portion to community treasuries or collaborators.
10x+
Parameter Flexibility
Real-Time
Adjustment
04
The Infrastructure: Layer 2 & App-Chain Focus
High gas costs on Ethereum mainnet made micro-royalties prohibitive. Scaling solutions like Arbitrum, Optimism, and app-specific chains (via Polygon CDK, Arbitrum Orbit) reduce fees to <$0.01, making granular, automatic payments economically viable.
<$0.01
Tx Cost
1000x
Throughput
05
The Protocol: Manifold's Royalty Registry
A canonical on-chain registry that acts as a source of truth for royalty settings, overriding marketplace defaults. It's a critical piece of neutral infrastructure that prevents platform-level policy changes from breaking creator economics.\n- Override Authority: Ensures creator intent is respected everywhere.\n- Upgradeable Logic: Allows for new royalty standards without asset migration.
Single Source
Of Truth
Protocol-Level
Enforcement
06
The Endgame: Frictionless Creator Economies
Automatic royalties are just the first step. The final state is a composable financial layer where revenue is natively streamed, split, and reinvested across DeFi, gaming, and social without manual intervention. This turns static NFTs into active, yield-generating financial assets.
Composable
Financial Layer
0 Manual Steps
For Creators
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall