Better and More Diverse Royalty Schemes
Abstract
By using modern tax theory, various royalty schemes are proposed to better fit the diversity of NFTs and industry development. Through research, most of the royalty schemes can be implemented without any improvements to EIP2981.
Royalty Scheme
We replace the _salePrice in EIP2981 with the taxablePrice.
That is, the expression of
function royaltyInfo( uint256 _tokenId, uint256 _salePrice ) external view returns ( address receiver, uint256 royaltyAmount )
is transformed to
function royaltyInfo( uint256 _tokenId, uint256 taxablePrice ) external view returns ( address receiver, uint256 royaltyAmount );
Scheme 1: Value-Added Royalty (VAR)
Only tax the portion of the seller’s profit. If the seller does not generate a profit during the period of holding the NFT, then no tax is imposed. Alternatively, tax only the difference between the highest price and the previous high price when the NFT price hits a new high.
taxable price = max (current sale price - last sale price, 0)
or
taxable price = max (current sale price - historical highest sale price, 0)
The previous royalties were collected based on trading volume. A certain percentage of the trading volume was the royalty for the project. For the NFT holders, their profits were based on sale price, and they could make a profit if the selling price is higher than the purchase price. For a holder who hold the NFT and sold it at a loss, the previous royalty scheme is not ideal, and it it has caused a certain degree of disconnection between the interests of the project and the holders. Through the above scheme, the project can only receive royalty income when the NFT price hits a new historical high, thus maintaining the consistency of the interests of the project and the holders.
Suitable for art NFTs, collectible NFTs, etc.
Scheme 2: Capped Royalty（CR）
The royalties paid for each trading cannot exceed a certain limit.
taxable price = min (current sale price, cap price)
Scheme 3: Fixed Royalty
The royalties paid for each transaction is a fixed value.
taxable price = constant
Scheme 4: Sale Royalty
Charge a certain percentage of the sale price as royalties.
taxable price = this sale price
Note: this is the royalty scheme that was commonly used before.
Scheme 5: Annuity
Charge royalty on an annual basis. For example, the charging strategy adopted by ENS.
This is suitable for some utility NFTs. For utility NFTs, in order to maintain their continuous utility, it may be necessary for the project to have sustained expenditures, hence an annuity approach can be adopted to maintain the project’s operations.
How to Implement Mandatory Royalties
The competition between centralized entities in the current NFT market shows that the collection of NFT royalties cannot rely on their moral level. Only when NFT itself realizes NFT trading functions in the contract can mandatory royalties be implemented. Therefore, we propose EIP-6105 to achieve intermediary-free NFT trading.
Discussions-to
At the same time, If deemed necessary to better protect the interests of the project team and community, they may consider adding a blocklist to their implementation contracts to prevent NFTs from being traded on platforms that do not comply with the project’s royalty scheme.
Other
There is currently no consensus on what the optimal royalty rate should be, and it must be said that the royalty rates of most projects lack scientific justification. On the one hand, excessively high royalties can harm the liquidity of NFTs and hinder the development of the industry. On the other hand, if a project or community loses royalty income in the early stages of industry development, they will lack the funds to sustain project operations. The recommended royalty rate should be decided through joint discussion among project teams, community members, and trading markets, but the plan must be aimed at promoting the further development of the industry, rather than just satisfying the interests of one party.
Meanwhile, projects should also actively consider expanding their revenue sources rather than relying solely on royalty income.