When I first started engaging with NFTs, I naively thought that royalties paid to creators when their NFTs were resold were enforced onchain. Over time I learned that it was in fact being enforced at the marketplace level. Then came the wave of low/no fee marketplaces that kick started a race to zero, where the average trader now pays ~0.5% fee. Better than nothing, but still a far cry from the 10% that was commonly seen in the explosion of the NFT sector in 2021.
Unfortunately when some pay rolayties and others don't, it puts those that want to honour them at a disadvantage in the free market. Recently a16zcrypto shared a post suggesting some potential solutions:
Marketplace Blocklists
Marketplace Allowlists
Manualy curated
Staked Inclusion
Seperation of ownership and title
These all have their own inherent challenges which are described within the piece which I suggest reading for context. But essentially they argue that it all boils down to a tradeoff of composibility (which enables permissionless innovation) vs royalty enforcement. You either have ultimate freedom or ultimate royalty enforcement which restricts what you can do with your property.
If you don't have the right to freely transfer something, do you truly own it?
This makes me think of the comparison between traditional books and ebooks purchased through Amazon. When you buy a physical book, you can easily sell or share the physical item. But when you buy the ebook equivilant, you are actually purchasing a license and you have no true ownership to resell or share the book. For this reason, physical books are often more expensive, especially for those that people want to "own" for sentimental reasons rather than simply access. You can still see ebooks in your digital library but you don't own them, you have simply purchased access. Is this what NFTs will become?
In the case of memeified JPEGs, free access is the default, so purchasing access makes no sense without some sense of ownership. But in the case of more advanced NFTs like ENS names, you are renting access by default so maybe restrictions can make sense.
This suggests that we are probably doing a disservice by trying to solve the "NFT royalty problem", and instead should be treating them as the items they represent. NFTs representing limited digital runs or unique of pieces of art will likely require different solutions to game items shared by millions of users, and in turn real world assets reperesented by NFTs will differ from digital native assets.
Perhaps there is no solution to the NFT royalty problem becuause it isn't a problem? Perhaps the focus should remain on more specific use cases where royalties may or may not make sense, and work out best practices for implementation for specific product categories, or even per product basis? Perhaps OpenSea was never meant to be the sole interface for trading all digital assets forever?
The question might become which items do we truly want to own? Which items are we happy to rent access to? What up-front premium are we willing to pay for true composibility? What business models make sense within these new parameters?
