Exploring NFT Royalties: The “Right of Reclaim” Approach
Concepts and Examples for NFT Composability
"Right of reclaim" is a new way to handle NFT royalties. It avoids the trade-off between enforcing payments and allowing free use. Instead of using blocklists or allowlists, it encourages royalty payments for NFT sales using rewards. This doesn't limit how NFTs can be used freely. The idea changes what it means to "own" an NFT on the blockchain.
The Problem
Before exploring the concept of “Right of Reclaim,” it’s important to understand a key issue in the NFT space: distinguishing between real sales (which should pay royalties) and other kinds of transfers after minting NFTs from creators.
For instance:
Gifting the NFT to a friend
Moving the NFT between personal wallets
Transferring the NFT to a smart contract for staking or other purposes
This ambiguity makes it difficult to automatically enforce royalty payments. To address this, existing solutions like blocklists and allowlists have been developed to control where and how NFTs can be moved.
Blocklists and Allowlists
There are two main ways to do this:
Blocklists: These prevent NFTs from being sold on certain marketplaces that don't honor royalty payments.
By restricting where NFTs can be traded, creators hope to funnel transactions through platforms that enforce royalties.
Allowlists: This approach is the inverse of blocklists. It permits NFT sales only on approved marketplaces that have committed to enforcing royalty payments.
This gives creators more control over where their NFTs can be traded.
Limitations of Current Approaches
While blocklists and allowlists can help enforce royalties, they come with significant drawbacks:
Restricted Utility: By limiting where NFTs can be traded or used, these methods can significantly reduce the overall utility and value of the NFTs.
User Experience: Restrictions on transfers can lead to a poor user experience, potentially deterring adoption and use of NFTs.
Enforcement Challenges: These methods rely on ongoing maintenance and can be circumvented by determined actors.
The core dilemma is clear: stricter royalty enforcement often comes at the cost of reduced NFT utility and transferability. This trade-off has led to the search for more balanced solutions
Introducing the "Right of Reclaim"
The “Right of Reclaim” mechanism introduces a dual ownership model for NFTs, distinguishing between asset owners and title owners. This approach incentivizes royalty payments through a fixed title transfer fee, reducing reclaim risks and ensuring fair compensation for creators.
Definition:
Asset Owner: The wallet that currently holds the NFT, typically referred to as the “owner” in current NFT systems.
Title Owner: The last wallet to pay a royalty (or title transfer fee) to the NFT creator.
Rights:
Asset Owner: Holds possession of the NFT but may be subject to reclaim risk.
Title Owner: Has the right to reclaim the NFT at any time if they are not also the current asset owner.
Example:
Imagine an artist, Alex, creates an NFT artwork and sells it to Bob. Bob pays a title transfer fee, making him both the asset owner and the title owner. Later, Bob sells the NFT to Carol without her paying the title transfer fee.
Current Ownership: Carol holds the NFT, so she is the asset owner. However, Bob remains the title owner because he was the last to pay the fee.
Reclaim Risk: Since Carol didn’t pay the title transfer fee, Bob can reclaim the NFT at any time, creating a risk for Carol.
Incentive: To eliminate this risk, Carol is motivated to pay the title transfer fee to Alex, thus becoming the new title owner and securing her possession of the NFT.
Outcome: This payment acts as a royalty to Alex, ensuring that creators are fairly compensated whenever the NFT changes hands in a legitimate sale.
Technical Implementation
However, this concept is quite new and there isn’t an ERC standard to apply it yet. So, with the help of ChatGPT, I have outlined a logic with a pseudocode representation of the “Right of Reclaim” smart contract:
Contract ReclaimableNFT
State Variables:
Mapping of (tokenId -> address) titleOwner
Mapping of (tokenId -> uint256) titleTransferFee
Events:
Event TitleTransfer(tokenId, from, to)
Event NFTReclaimed(tokenId, from, to)
Function mint(to, tokenId, fee):
Mint NFT to address 'to'
Set titleOwner[tokenId] = to
Set titleTransferFee[tokenId] = fee
Function transferTitle(tokenId):
Require payment >= titleTransferFee[tokenId]
previousTitleOwner = titleOwner[tokenId]
Set titleOwner[tokenId] = msg.sender
Transfer payment to previousTitleOwner
Emit TitleTransfer(tokenId, previousTitleOwner, msg.sender)
Function reclaimNFT(tokenId):
Require msg.sender == titleOwner[tokenId]
assetOwner = ownerOf(tokenId)
Transfer NFT from assetOwner to msg.sender
Emit NFTReclaimed(tokenId, assetOwner, msg.sender)
Function setTitleTransferFee(tokenId, fee):
Require msg.sender == titleOwner[tokenId]
Set titleTransferFee[tokenId] = fee
End ContractExplanation
State Variables
titleOwner: This keeps track of who the title owner is for each NFT, identified by its token ID. The title owner is the last person who paid the title transfer fee.
titleTransferFee: This stores the fee that must be paid to transfer the title for each NFT, identified by its token ID.
Events
TitleTransfer: This event is triggered (activated) whenever the title ownership of an NFT is transferred to someone new.
NFTReclaimed: This event is triggered whenever the title owner reclaims an NFT from the current asset owner.
Functions
mint(to, tokenId, fee):
Purpose: Creates a new NFT.
How it works: It creates (mints) a new NFT and assigns it to the specified address (to). It also sets the initial title owner to this address and establishes the title transfer fee.
transferTitle(tokenId):
Purpose: Transfers the title ownership of an NFT.
How it works: It allows the current asset owner to pay the title transfer fee. If the fee is paid, the title ownership is transferred to the payer, and the fee is sent to the previous title owner. This triggers the TitleTransfer event.
reclaimNFT(tokenId):
Purpose: Allows the title owner to take back the NFT.
How it works: If the person trying to reclaim the NFT is the current title owner, the NFT is transferred back to them from the current asset owner. This triggers the NFTReclaimed event.
setTitleTransferFee(tokenId, fee):
Purpose: Sets a new title transfer fee.
How it works: The current title owner can change the fee required to transfer the title ownership of the NFT by setting a new fee.
Comparison of Traditional Royalties and “Right of Reclaim” in NFTs
NFT royalties ensure creators get paid from secondary sales. Here’s the comparison:
Traditional Methods:
Use a percentage-based royalty enforced by marketplaces.
Can be bypassed if sold outside compliant platforms.
“Right of Reclaim”:
Introduces a dual ownership model with asset and title owners.
Uses a fixed title transfer fee to ensure royalties are paid.
Why It Matters?
The “Right of Reclaim” mechanism secures fair compensation for creators by embedding royalty enforcement directly into the NFT’s smart contract. This reduces reliance on marketplaces and ensures compliance even in peer-to-peer transactions, promoting a fairer and more reliable system for managing NFT royalties.
Thoughts
While the “Right of Reclaim” aims to ensure royalties are automatically enforced, it brings significant challenges for marketplaces. These include reclaim risk, dependence on creator consent, and issues with scalability.
Marketplaces would need to implement comprehensive strategies to manage these challenges and provide a good user experience, which may not be feasible for all. More research is needed to develop royalty frameworks that are scalable, composable, and protect creator rights in the fast-evolving NFT ecosystem.
Hi, I'm Kevin Wang!
By day, I'm a product manager diving into the latest tech innovations. In my free time, I'm the creator behind tulsk.io, a platform dedicated to PM Intelligence. My passion? Breaking down the complexities of web3 and AI into bite-sized, understandable concepts.
My goal is simple: to make cutting-edge technologies accessible to everyone. Whether you're looking to expand your knowledge or apply these insights to your personal growth, I'm here to guide you through the exciting worlds of web3 and AI.
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Good points 👌