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OpenSea Creates Tool to Help NFT Collections Enforce Royalties On-Chain

Devin Finzer· 5 min read

When the NFT standard was created in 2018, creator fees (sometimes referred to as ‘royalties’) did not exist. OpenSea supported them early to invite more creators into the space, and we hoped at the time that they would be durable. But the last few months have proven that off-chain enforcement is too brittle. Notably, on marketplaces where these fees are optional, we’ve watched the voluntary creator fee payment rate dwindle to less than 20%. And on other marketplaces, creator fees are simply not paid at all.

An unfortunate consequence of this ecosystem shift is that the business model used by the vast majority of creators in this industry is now subject to enforcement discretion of marketplaces rather than code. And for new creators entering the space, it can come as a surprise that the fees they set aren’t always enforceable. With many marketplaces choosing to stop enforcing creator fees, to put it bluntly, the last few months haven’t felt WAGMI.

Given our role in the ecosystem, we know it’s critical for us to take a thoughtful, principled approach to solving this problem, and to lead with solutions. It’s clear that many creators want the ability to enforce fees on-chain; and fundamentally, we believe that the choice should be theirs to make – it shouldn’t be a decision made for them by marketplaces. So we’re looking to balance the scales by putting more power in creators’ hands, equipping them with tools to control their business model.

What we’re doing

To that end, today, we’re launching a tool for on-chain enforcement of creator fees for new collections. This tool is our first version of on-chain enforcement. Starting at 12pm ET on Tuesday, November 8, OpenSea will enforce creator fees only for new collections that use an on-chain enforcement tool such as this one. In the coming months we’ll launch additional tools and improvements for on-chain enforcement, and we will engage with the community to get feedback on them along the way.

We recognize this is a first step, so we’re committed to engaging with our communities about solutions for existing collections. In deference to how difficult it is to enforce fees on chain for existing collections, we won’t make any changes for existing collections through at least December 8, 2022. To be transparent, the consideration set for what happens after December 8 is wide open – and we’re considering options ranging from continuing to enforce off-chain fees for some subsets of collections, to allowing optional creator fees, to collaborating on other on-chain enforcement options for creators. We recognize not all creators, collections, and communities are the same and we are looking to create a long-term policy that reflects that.

Our On-Chain Enforcement Tool for New Collections

Our initial on-chain tool is a simple code snippet that creators can add to future NFT contracts, as well as existing upgradeable contracts. This code restricts NFT sales to marketplaces that enforce creator fees. Starting at 12pm ET on Tuesday, November 8, OpenSea will check new collections to see if their items are able to be sold on marketplaces that do not enforce creator fees. OpenSea will enforce creator fees for new collections that use an on-chain enforcement tool. OpenSea will not enforce creator fees for new collections that do not implement on-chain enforcement.

To add this code to a new contract or to an upgradeable contract, follow the instructions here.

Make no mistake, technical decisions like this involve tradeoffs: enforcing creator fees on-chain requires sacrificing some of the censorship-resistance and permissionless nature of NFTs. Nevertheless, we believe creators should have the power to build the collections and communities that they desire, and buyers and sellers should continue to have the freedom to choose which collections they do and don’t engage with.

What should existing collections do?

Our belief, informed by the last few months of observation, is that creator fees without on-chain enforcement methods are not viable.

Unfortunately, the bitter pill is that, to the best of our knowledge, the only way to achieve on-chain creator fee enforcement for existing collections with non-upgradeable smart contracts is to take drastic measures with their communities, like shifting the canonical collection to a new smart contract. In our opinion, by far the better option is for existing creators to explore new forms of monetization and alternative ways of incentivizing buyers and sellers to pay creator fees, and to ensure that future collections enforce creator fees on-chain.

Why are we doing this?

It’s become clear that the current mechanics of creator fee enforcement are not sustainable—not for the marketplaces who enforce them, and, more importantly, not for creators themselves.

While we believe creator fees without on-chain enforcement are going away, we strongly believe that creator fees as a broad concept are not. Creator fees are an important innovation of web3 that help creators monetize their work in a more effective way. But marketplaces should not enforce business models for creators, creators should have independent control. We hope that this is a first step in that direction.

We don’t expect that we can drive this ecosystem shift alone, nor do we think that all creators will want to use creator fees as a form of monetization. But by providing on-chain enforcement tools, we hope to lend creators our support so they can choose. We hope this also inspires others looking for solutions to keep creator fees a part of our ecosystem to join us and work collaboratively on even more solutions.

What’s next?

We wanted to share this thinking as soon as possible to give our communities time to process, prepare and ask questions. Over the coming days, we’ll be reaching out to many more creators and collections. If you want to talk about this, we’re here to listen. We’re holding a Twitter Space this evening so you can ask your initial questions, and we will schedule more throughout the week.

We’re committed to building the best destination for NFT creators and collectors. Over the coming months we plan to iterate both on creator fee enforcement and support for new business models. We will share updates as we have them. We appreciate all the feedback shared to-date, and look forward to hearing more.

# NFT

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