Why Royalty Enforcement Requires a New Consensus Mechanism

Smart contracts are not sovereign. They execute logic on-chain but cannot govern the routing of transactions. Marketplaces like Blur and Magic Eden bypass creator fees by settling trades off-chain in private order books, only using the blockchain for final settlement.

The enforcement layer is the marketplace. Royalties are a policy, not a program. A contract cannot force a marketplace to include a fee; enforcement requires consensus among market participants to reject non-compliant transactions, similar to how MEV searchers adhere to PBS rules.

ERC-2981 is a social standard. This NFT Royalty Standard provides a canonical fee lookup, but its power derives from marketplaces like OpenSea collectively agreeing to respect it. Without this social layer, it is just another function call that can be ignored.

Evidence: After Blur's optional royalty model, creator earnings on major collections fell over 70%. This proves that contract-level logic is insufficient against coordinated, off-chain economic incentives.

Royalty bypass is a Sybil attack. It is not a hack but a rational economic exploit. A marketplace like Blur creates a low-fee identity (a Sybil) to attract volume, fragmenting the creator's intended economic consensus on secondary sales.

The core failure is state consensus. An NFT's smart contract defines a royalty, but marketplaces like OpenSea and Blur operate as independent state machines. There is no shared execution layer to enforce the creator's rule universally across all venues.

This creates a prisoner's dilemma. Honorable actors (e.g., a marketplace enforcing fees) are punished with volume loss. The Nash equilibrium is a race to the bottom, where the lowest-fee Sybil (bypasser) wins, destroying the creator's revenue model.

Evidence: The Blur Effect. After Blur's optional royalty policy, creator royalties on major collections plummeted from ~5% to near 0% on competing platforms, demonstrating the rapid collapse of an unenforced consensus.

Royalties are a consensus rule. A chain's state transition function must reject non-compliant NFT sales. General-purpose chains like Ethereum or Arbitrum prioritize neutrality, making this a political non-starter.

Application-specific chains are mandatory. Projects like Aura Network and Immutable X demonstrate that custom execution environments are the only way to hardcode creator economics into the base layer's logic.

Staked curators enforce off-chain. A network of bonded validators, similar to The Graph's indexers, must actively monitor and invalidate wash trades and hidden OTC sales that bypass on-chain logic.

Evidence: Immutable X's 2% protocol fee, enforced at the sequencer level, proves that bespoke infrastructure captures value that leaks on open marketplaces like Blur and OpenSea.

Royalties require consensus-level enforcement. On-chain royalties are a policy, not a protocol rule. Enforcing them requires validators to reject non-compliant transactions, which introduces subjective logic and centralized censorship vectors into the base layer.

The market has already voted with liquidity. The migration of major NFT trading volume to optional-royalty marketplaces like Blur and Magic Eden demonstrates that users prioritize liquidity and low fees over creator compensation when given the choice.

Layer-2 solutions are a band-aid. Protocols like EIP-2981 or Manifold's Royalty Registry are application-layer standards, not consensus-layer fixes. They rely on marketplace compliance, which fragments the ecosystem and creates a prisoner's dilemma for individual platforms.

Evidence: After OpenSea made royalties optional, creator earnings on the platform dropped by over 98% for some collections, proving that social enforcement fails without a technical mandate.