Michael Blau
@michaelblau
NFT royalties were never enforced onchain, even though everyone expected them to be. Onchain royalties on secondary sales have always been an important value proposition of NFTs, but they’ve been misunderstood for a while now. In a way, NFT royalties reached product-market fit before there ever was a “product.” Creators now have a few different solutions to choose from, but each come with tradeoffs that can be difficult to navigate. So how do NFT royalties work, and why have they been so challenging to implement? Here are some thoughts from @skominers, @darenmatsuoka, and myself on current designs, along with a few new ideas. Full post 👉 https://a16zcrypto.com/posts/article/how-nft-royalties-work/
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Michael Blau
@michaelblau
It’s difficult to distinguish between the NFT transfers that are sales that should pay a royalty and other types of transfers, like transferring between your own wallets or gifting an NFT, etc. The two most popular designs for enforcing NFT royalties, blocklists and allowlists, take different approaches to restricting NFT transfers, but they come with a tradeoff: The more strictly a creator prevents transfers, the less composable the NFT.
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Michael Blau
@michaelblau
The blocklist model is openly composable by default, but it’s easier for people to get around royalties. On the other hand, it's easier to enforce royalties with an allowlist, but you risk limiting which applications an NFT can interact with. The tradeoff looks like this…
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Michael Blau
@michaelblau
One strategy for addressing the royalty enforcement/composability tradeoff is looking at it through the lens of incentive design: Are there incentives for NFT marketplaces and/or consumers to actively choose to respect royalties? One potential solution is combining the allowlist with a staking mechanism that enables marketplaces and other applications to permissionlessly add themselves to an allowlist by staking money or other resources. NFT owners could interact with new apps/marketplaces immediately, and if an app misbehaves, creators could slash its stake and remove it from the allowlist.
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Michael Blau
@michaelblau
Another idea is one we call “right of reclaim.” This strategy refines what it means to “own” an NFT onchain. Every NFT has two potentially different owners: - An asset owner is the wallet that holds an NFT - A title owner is the last wallet to pay a royalty to the creator With right of reclaim, if the asset and title owner of an NFT are different, then the title owner can always reclaim the NFT to their wallet at any time. The asset owner can remove this “reclaim risk” by paying a title transfer fee (effectively, the royalty) to the creator to become the title owner. Here’s a visual representation...
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Michael Blau
@michaelblau
There are plenty of open questions and assumptions around both of these designs, which we get into in more detail in the post. Every creator and every NFT is different. Our goal isn’t to recommend a single solution, but the more we can expand the design space, the better. If you have any new ideas after reading, please share them with us!
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