Introduction

The NFT market has grown exponentially since its inception, with NFT exchanges participating in an escalating war. To siphon users from each other, creators have become collateral damage as exchanges have callously removed the enforcement of royalty fees. Creators are left powerless with a dying revenue source amid turbulent market conditions.

However, with the advent of enforceable on-chain royalty solutions, such as EIP-4910 and further developed by Limit Break, the power may shift toward creators and collectors once again. However, Limit Break’s solution stirs a philosophical discussion on whether smart contracts should prohibit free market trading or whether it is a necessary “evil” for NFT creators to survive. This report will explore enforceable royalties for creators and collectors alike and hypothetical implementations in future games.

Current Royalty Standards

The current NFT royalty standard is EIP-2981, a royalty payment signal implemented through good faith and cooperation. For creators to receive fees, payment must be voluntary because only the royalty fees are stored on-chain, but enforcing payment is not. It is impossible to distinguish when NFTs are sold or transferred between the owner’s wallets. EIP-2981 aims to enable universal support for creators, but all marketplaces must implement the royalty standard to bind traders by the same rules. The premise for creating a royalty standard was that with enforced royalties, creators would receive compensation through funding. Unfortunately, royalties have become optional at the time of writing, deterring NFT creators from innovation and participation.

In a free market economy, marketplaces create competitive moats and financial incentives to attract customers and create sticky liquidity. In turn, traders naturally navigate towards marketplaces with lower fees to realize higher profits. Royalty fees were either cross-incompatible between marketplaces such as OpenSea and LooksRare, or made optional as with Blur and now OpenSea. So the presumption that NFT marketplaces would behave in good faith to uphold the NFT ethos of supporting creators was an oversight when creating EIP-2981.

In recent months, developers and traders alike blamed