Creator fees for NFTs are definitely broken. To date, they’ve only been built in a web2 way, which just isn’t the durable ideal we’ve come to expect from web3.
In the status quo, they’re either set by changing centralized settings on a per-marketplace basis, or suggested on-chain using EIP-2981. These methods don’t actually enforce creator fees today; they simply provide information and marketplaces can choose to conform, or not.
Terminology note: I’ll refer to these fees as “royalties” below, but they’re in reference to the fees creators receive in secondary sales, and not to be confused with intellectual property royalties attached to the metadata.
Architecture debt
The dream of NFTs was to create programmable, platform-independent products. Mini-businesses that have near-zero platform risk. But royalty enforcement has, unfortunately, always been platform-dependent, living in the web2 world. We are effectively saddled with architecture debt.
It’s not possible to fully enforce creator fees or any other fees on-chain. Unless all NFT transfers are taxed (including sending an NFT to your own wallet), someone can always build an escrow system and evade a rule that requires a split in the sale.¹
When talking about incentives in crypto, if someone can do it, someone will.
OpenSea sticks to creator royalties, but it’s clear that competitors have a growing incentive to skirt them in the bear market. So, too, do buyers and sellers.
Going forward
The point of the filter registry that OpenSea launched last night is to give creators more control over which platforms to allow. If you’re a creator and you want to improve your royalty enforcement in a Web3 way, use the tool and migrate your contract. Have an issue with the default choices there? Change it. The implementation is just an early iteration.
On a higher level, my guess is that we’ll see more diverse business models going forward, with more choice given to creators here.
Examples:
- streams of income without royalties (see Nouns DAO);
- benefits to royalty-payers (e.g. special royalty NFTs);
- normalization of creator holdbacks, keeping some portion of their NFTs for themselves, for sale later;
- experimentation with Harberger Taxes, and other implementations of subscription payments.
¹ With EIP-1153, we may have a way of enforcing fee splits without the use of allowlists or denylists. NFT contracts would be able to check that a fee was spent earlier in the same transaction.