With all this talk about NFT royalties, we felt compelled to unpack Holograph’s PA1D royalty contract; how it works, what it can and can’t do, as well as implications for the future of NFT royalties. Let’s dive in.
Holograph provides an interface to enable creators to set a royalty percentage on contract deployment.
This means that whenever an NFT is sold under certain conditions the royalty percentage is transferred to the creator’s PA1D contract, at which point they may withdraw to a wallet (this feature is forthcoming).
PA1D works by storing all of the different royalty languages spoken by marketplaces and ensuring that whenever a marketplace sale + a request for royalty information is made, that the request is fulfilled as configured by the contract deployer.
You can see from this code snippet that PA1D supports all current marketplace standards.
To be clear, Holograph does NOT force royalty payments on simple NFT transfers. PA1D signals to marketplaces what type of royalties need to be paid out as long as all ecosystem participants (creators, collectors, & marketplaces) agree to honor the contract’s on-chain royalty logic.
We acknowledge that there are limits to a smart contract’s ability to enforce royalty payouts. This is because smart contracts are often beholden to external data inputs (hence the existence of oracles). In other words, it only knows what you tell it (not so smart, huh?)
This limitation creates opportunities for noncompliant actors to circumvent smart contract enforcement. For example, a group of collectors may agree to trade NFTs “off-chain” and settle payment in fiat. In that scenario, smart contract enforcement is essentially useless.
Like it or not, much of web3 is conditional on social contracts being honored and upheld by ecosystem participants (e.g., Royalty Registry). Absent the right incentives, vulnerabilities can and will be exploited.
As far as we know, there is no “one size fits all silver bullet solution” to the NFT royalty debate. Like many things in life, some people like them (“artists deserve to get paid”), and other people don’t (“artist royalties are greedy”)
Our position is to build tools that provide optionality for web3 participants. Users are free to use them, or not. For example, our app doesn’t require a royalty configuration, but it’s there for creators who want it.
The idea is not to create the “perfect solution” (in engineering there are no perfect solutions, only tradeoffs), but to provide options that are better than what currently exists (by removing rent seekers and replacing them with autonomous software).
Thanks for reading and make sure to keep in touch!