NFT royalties enforcement debates

When non-fungible tokens (NFTs) exploded into mainstream culture in 2021, one of the most celebrated innovations was the promise of automatic royalties for creators. Unlike traditional art or music markets, where artists often earn nothing from secondary sales, NFTs could embed smart contracts that ensure creators receive a percentage every time their work is resold.

But in practice, this promise has become one of the most contentious debates in Web3. Marketplaces have experimented with optional royalties, some have eliminated them altogether, and creators argue that their livelihoods are at stake. Meanwhile, collectors insist that enforced royalties make NFTs less liquid and reduce profitability.

The controversy has become a defining issue for the NFT sector—pitting ideals of creator empowerment against the realities of market efficiency.

1. How NFT Royalties Work

NFT royalties are payments, typically 5–10% of resale value, automatically directed to the original creator whenever the NFT is sold on secondary markets.

• Mechanism: Smart contracts on blockchains (like Ethereum or Solana) specify royalty percentages.

• Intended Outcome: Ensure creators share in the value of their works as they appreciate.

• Initial Promise: A “game-changer” for artists, musicians, and developers who could finally earn recurring revenue streams.

But enforcement depends on marketplaces honoring the royalty code—and this is where disputes begin.

2. The Early NFT Boom: Royalties as a Selling Point

In the 2021–22 boom, royalties were a core marketing feature:

• Platforms like OpenSea promoted royalty support to attract creators.

• High-profile artists like Beeple and music collectives highlighted perpetual income streams.

• Communities rallied around the idea that Web3 was fundamentally “creator-first.”

However, the euphoric bull market masked the structural weaknesses of royalty enforcement.

3. Why Royalties Are Hard to Enforce On-Chain

Despite the perception that royalties are “built into NFTs,” most blockchains cannot enforce royalties at the protocol level.

• NFT smart contracts can suggest royalties, but buyers and sellers can bypass them.

• Peer-to-peer (P2P) transfers or platforms that ignore royalty code allow royalty-free transactions.

• Marketplaces ultimately control whether royalties are honored.

In other words, royalties are socially enforced, not cryptographically enforced.

4. The Market Shift: Optional and Zero Royalties

As NFT markets cooled in mid-2022, competition for users intensified. Some platforms made royalties optional to attract traders seeking lower fees.

• X2Y2, LooksRare, Blur: Enabled optional or zero royalties, disrupting OpenSea’s dominance.

• OpenSea (2023): Announced it would stop enforcing royalties for existing collections, sparking backlash from creators.

• Solana Marketplaces: Several dropped royalties entirely, leading to major creator protests.

This shift fractured the ecosystem, with some marketplaces positioning themselves as creator-friendly and others prioritizing collector profits.

5. Arguments For and Against Enforced Royalties

a) Creator Perspective (Pro-Enforcement)

• Royalties are part of the original Web3 social contract.

• Artists rely on recurring royalties as sustainable income.

• Without royalties, creators lose incentive to participate in NFT ecosystems.

b) Collector & Trader Perspective (Anti-Enforcement)

• Royalties make NFTs less liquid and less profitable for flipping.

• Enforcement is uneven; avoiding royalties is easy on some platforms.

• Value accrues disproportionately to early creators while collectors bear costs.

c) Marketplace Perspective

• Enforcing royalties can drive away volume to royalty-free competitors.

• Non-enforcement may boost liquidity but risks alienating creators.

• Business models hinge on attracting either side of the debate.

6. Case Studies

a) OpenSea’s Policy Flip-Flop

• Initially enforced royalties, but facing competition from Blur, introduced “optional royalties” in 2023.

• Creators accused OpenSea of betraying its values.

• The backlash illustrated the fragile trust between marketplaces and creators.

b) Yuga Labs (Bored Ape Yacht Club)

• As one of the largest NFT creators, Yuga Labs strongly supported royalty enforcement.

• In 2023, it announced that future collections would block marketplaces that didn’t honor royalties.

• Highlighted the trend of creators embedding on-chain enforcement tools.

c) Solana NFT Marketplaces

• In 2022, platforms like Magic Eden experimented with optional royalties.

• Creators threatened to boycott, and some implemented new token standards to require royalties.

• The battle revealed deep divides in Solana’s NFT community.

7. Technical Solutions to Enforce Royalties

Developers have explored technical workarounds:

• Royalty-Enforcing Token Standards: E.g., Ethereum’s ERC-2981, Solana’s Metaplex upgrades.

• Blocklists: Creators can block NFTs from trading on platforms that ignore royalties.

• Programmable Ownership: NFTs that restrict transfers unless royalties are paid.

But these solutions often clash with decentralization ideals—by limiting transferability, they undermine the principle of permissionless ownership.

8. Ethical and Cultural Dimensions

The royalties debate is more than economics; it’s cultural:

• Web3 Ethos: Many argue royalties are a core promise of Web3 to empower creators.

• Community Trust: Royalties align communities around long-term creative value, not short-term speculation.

• Class Divide: Traders view NFTs as assets; artists view them as creative works. The clash reflects competing visions of what NFTs should be.

9. The Regulatory Angle

As royalties debates rage, regulators are also paying attention:

• If royalties are viewed as securities-like cash flows, NFTs could face stricter oversight.

• Marketplaces altering royalty rules may face scrutiny over consumer protection and fair disclosure.

• Governments may eventually step in with standardized frameworks, though this risks undermining decentralization.

10. Potential Futures for Royalties

Several scenarios could play out:

1. Voluntary Norms Dominate: Communities pressure marketplaces to honor royalties.

2. On-Chain Enforcement Wins: New token standards make royalties unavoidable.

3. Market Segmentation: Some platforms go creator-first, others remain trader-first.

4. Regulation Imposes Standards: External enforcement replaces voluntary compliance.

5. Hybrid Models: Reduced but nonzero royalties become a middle ground.

Most likely, the future is fragmented, with competing approaches depending on community values and platform priorities.

11. Lessons from the Debate

• Royalties Are Not Guaranteed: Creators cannot rely solely on perpetual NFT royalties.

• Transparency Matters: Marketplaces shifting rules damage trust.

• Technology vs. Social Norms: Enforceable royalties may sacrifice permissionless ideals.

• Diversified Revenue Models: Creators increasingly explore subscriptions, access passes, and token-gated services as alternatives.

12. Timeline of Key Events

• 2021: NFT boom; royalties marketed as revolutionary.

• Early 2022: Secondary markets grow, royalties flow to creators.

• Mid 2022: Solana marketplaces drop royalties; creator backlash.

• Late 2022: Blur rises with optional royalties, challenging OpenSea.

• 2023: OpenSea drops mandatory royalties for older collections; Yuga Labs pushes back.

• 2024–2025: Technical standards for royalty enforcement gain traction, but fragmentation persists.

Conclusion

The NFT royalties debate captures the tension at the heart of Web3: decentralization vs. sustainability, market efficiency vs. creator rights. While the original dream was that NFTs would guarantee creators perpetual income, the reality is that royalties are only as strong as the marketplaces that enforce them.

For creators, the lesson is to diversify revenue models and avoid over-reliance on royalties. For collectors, it’s to recognize that reduced royalties may boost liquidity but risk hollowing out the creative ecosystems that give NFTs cultural value.

Ultimately, the battle over royalties is not just about money—it’s about the identity and direction of NFTs as an industry. Whether they evolve as speculative assets or creator-first tools will define Web3’s legacy in the digital economy.

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