Why NFT Royalty Enforcement Is a Broken Promise

Royalties are not enforceable. The ERC-721 standard lacks a native mechanism to mandate royalty payments on secondary sales, making them a social contract, not a technical one. This design flaw created a reliance on centralized marketplaces like OpenSea to honor creator-set fees.

Marketplaces are not custodians. Platforms like Blur and Magic Eden removed or made royalties optional to compete on price, proving that market incentives trump protocol loyalty. This created a race to the bottom where creator revenue is the first casualty.

The enforcement arms race fails. Solutions like EIP-2981 and operator filters are easily circumvented. Blocking non-compliant marketplaces fragments liquidity and harms collectors, while alternative royalty models like Manifold's Royalty Registry create new centralization points.

Evidence: Creator royalties on major collections plummeted over 90% after Blur's emergence, demonstrating that off-chain governance is a weak foundation for on-chain value capture.

Smart contracts are execution machines, not enforcement agents. They process logic for transactions that occur on their native chain. The royalty payment logic embedded in an NFT's ERC-721 or ERC-1155 contract only triggers if the sale executes on-chain through its designated methods.

Marketplace dominance creates a bypass. Major platforms like Blur and OpenSea operate centralized order books and matching engines. They can choose to route trades through their own, royalty-optional smart contracts, bypassing the creator's on-chain logic entirely. The contract's code is powerless against this off-chain coordination.

The EIP-2981 standard is a request, not a rule. This widely adopted royalty standard provides a standardized signal for fees. However, it relies on marketplace compliance to read and honor the signal. A marketplace's frontend can simply ignore it, rendering the technical standard ineffective without centralized goodwill.

Evidence: After Blur's aggressive fee policies, creator royalty payments on Ethereum plummeted from near 100% compliance to often less than 20% on secondary sales, demonstrating the fragility of code-only enforcement against marketplace economic incentives.

Royalties are a social contract that the blockchain's technical layer does not enforce. The EIP-2981 standard is a suggestion, not a mandate, leaving enforcement to marketplaces.

Blur's zero-fee model created a prisoner's dilemma. Competing marketplaces like OpenSea must also waive royalties or lose liquidity, proving that protocol-level enforcement is the only solution.

Evidence: After Blur's dominance, creator royalties on major collections fell from ~5% to near 0% on most secondary trades, destroying a projected $1B+ in annual creator revenue.

Enforcement is a tax. Every on-chain enforcement mechanism, from transfer hooks to custom token standards like ERC-2981, imposes a direct cost on the secondary market. This creates an immediate incentive for marketplaces like Blur and OpenSea to circumvent it to offer lower fees.

Markets route around friction. Just as traders use UniswapX for gasless swaps, NFT traders migrate to platforms that bypass royalties. A fragmented ecosystem with competing standards like EIP-2981 and EIP-721C guarantees enforcement failure, as liquidity follows the path of least resistance.

The data proves non-compliance. Post-OpenSea's optional enforcement shift, royalty payments collapsed. The royalty yield for top collections fell by over 80%, demonstrating that voluntary compliance is a market failure. The economic pressure to defect is stronger than any social contract.

Royalty enforcement is impossible on a decentralized, permissionless blockchain. Marketplaces like Blur and OpenSea bypass fees by routing trades through private pools or alternative settlement layers, making on-chain logic irrelevant.

The economic model is flawed. Royalties treat NFTs as physical goods, ignoring that digital assets derive value from network effects and utility, not scarcity alone. This creates misaligned incentives between creators and collectors.

Protocols like Manifold and Zora shift the paradigm by baking creator rewards into mint mechanics and secondary protocol fees, not naive transfer taxes. This moves value capture upstream.

Evidence: After OpenSea made royalties optional, creator earnings on major collections dropped over 80%. This proves the market, not the code, dictates terms.