Protocol-Level Enforcement vs Marketplace-Level Enforcement

Protocol-Level Enforcement excels at guaranteeing creator revenue by hard-coding royalty logic into the smart contract standard itself. For example, the ERC-721C standard, pioneered by Limit Break, uses on-chain allowlists to enforce payments, while ERC-2981 provides a universal royalty information standard. This approach removes marketplace discretion, ensuring creators like those on Art Blocks or CryptoPunks receive their designated share (e.g., 5-10%) on every secondary sale, regardless of the trading venue. The trade-off is reduced flexibility for marketplaces and potential friction with traders seeking lower fees.

Marketplace-Level Enforcement takes a different approach by making royalties an opt-in feature managed at the application layer. Major platforms like Blur and OpenSea with its Operator Filter once implemented policies where creators could block non-compliant marketplaces. This strategy prioritizes liquidity and trader choice, often resulting in lower effective fees to stimulate volume. However, it creates a fragmented landscape where royalty adherence depends on a marketplace's policy, leading to significant revenue leakage; for instance, Blur's model has been associated with driving creator royalties on Ethereum NFTs below 0.6% on average.

The key trade-off is between creator sovereignty and market efficiency. If your priority is maximizing and guaranteeing creator payouts for a premium brand or artist-centric project, choose a protocol-enforced standard like ERC-721C. If you prioritize maximizing liquidity, trader adoption, and marketplace flexibility for a highly fungible or trading-focused collection, a strategy reliant on marketplace-level enforcement may be more suitable, albeit with revenue risk.

Protocol-Level Enforcement excels at providing guaranteed, immutable execution because its rules are embedded in the base consensus layer. For example, platforms like Ethereum with its ERC-721 standard or Solana with its Metaplex programs enforce creator royalties directly in the smart contract logic, making circumvention technically impossible. This creates a predictable, trust-minimized environment for creators, as seen in the sustained royalty revenue for projects like y00ts on Solana, which maintains a 5-10% on-chain royalty across all marketplaces.

Marketplace-Level Enforcement takes a different approach by decoupling economic policy from settlement, allowing for greater flexibility and competition. This results in a trade-off: marketplaces like Blur and OpenSea can optimize for lower fees and better UX to attract volume, but they rely on voluntary compliance and social consensus, leading to fragmentation. The data shows this clearly: after OpenSea optionalized royalties in 2022, aggregate creator earnings on Ethereum dropped significantly, highlighting the model's reliance on centralized policy decisions rather than cryptographic guarantees.

The key trade-off: If your priority is creator sovereignty, long-term revenue predictability, and building on a credibly neutral base layer, choose a chain with strong protocol-level enforcement like Solana or Ethereum L2s with enforced standards. If you prioritize maximizing liquidity, fostering marketplace competition, and accepting flexible fee structures to drive adoption, choose an ecosystem that supports marketplace-level enforcement, such as the current Ethereum mainnet landscape. Your choice ultimately defines whether your protocol's core economics are governed by code or by the market.