To this point, royalties have been the backbone of creator revenue, providing long-term reliable income streams and incentivizing consistent delivery of value to holders. The past few months have shown, however, that NFT royalties are nothing more than a social construct with no innate enforceability. This has resulted in the overwhelming majority of NFT marketplaces abandoning them to benefit traders and maintain market share in a race-to-the-bottom dynamic.
Royalties were an attractive proposition for new creators and brands looking to enter the NFT space. Digital artists that once sat on the sidelines for lack of commercial feasibility saw an opportunity to share their work in a continually monetize-able way. From John Lê to Frank from DeGods, we saw 1/1 artists and collection communities thrive in this environment.
In light of these developments, we at Cardinal Labs decided to take action. We fundamentally believe that a protocol-level solution for royalties that combines the best of NFT ownership with financial protection for creators must exist, and as an NFT infrastructure-focused team, we felt our expertise was well-suited to attack this problem. Creators deserve the OPTION to ensure that royalties are protected and their endeavors can sustain.
The Creator Standard is a smart contract-level solution to the issue of royalty circumvention that allows creators to decide with which programs their NFTs can interact without sacrificing basic wallet-to-wallet transfers.
The protocol, which is built on top of the SPL token program, selectively permissions token transfers to achieve this. Every token has an associated Mint Manager account, which holds its freeze and mint authority. Each mint manager specifies a ruleset, which is simply a set of "rules" (allowlist/denylist) that dictates which programs can interact with and transfer the NFT. The ruleset is assigned by the NFT's creator and can be updated at their discretion.
The implementation allows for unrestricted wallet-to-wallet transfers. This is in contrast to a "federated" wallet approach whereby a user would whitelist certain wallets that are eligible for receipt of transfer. People fundamentally want comprehensive ownership over their assets, which includes being able to send them to whomever they want, whenever they want, whether it be to themselves, to a friend as a gift, or anything else.
The implications of this approach are that bad actors may try to implement centralized workarounds that leverage this form of transfer to facilitate royalty-free trading. Still, we don't feel it's necessary to sacrifice the UX benefits of unrestricted W2W transfers at this stage. Our view is that little trading will take place via means that exploit them due to the security risks associated with the implied centralization. That said, we'll be dynamic with our approach as bad actors try to adapt.
Every time someone attempts to transfer a Creator Standard NFT, its associated ruleset is checked to ensure the transfer is allowed. There are two types of rules that can be employed in a ruleset:
- Allowed Programs:
- Only programs in the specified list can interact with and transfer the token. This allows the creator to ensure that any features/forms of interactivity they want for their NFTs are enabled.
- Disallowed programs:
- All programs EXCEPT for those explicitly listed may interact with and transfer the token. This allows the creator to screen out bad actor programs.
In arriving at this solution, our team explored a variety of different approaches. We initially implemented a version that utilized our token-manager protocol and enforced that NFTs wrapped with it could only trade on royalty-enforcing marketplaces. We looked into federated wallets for transferring tokens. We even built a token-balance checker that enforces that royalties are paid out on any coincident balance changes in a transaction.
Ultimately, what we realized is that allowlist/denylist is really all you need. The authority of the collection simply sets the ruleset for their collection, and the tokens can move around within that framework. While the standard does support both forms of list, our view is that allowlist will become the norm due to the risk of program key rotation by bad actor platforms to evade denylist prevention.
Do I still own my NFT?
Yes, of course you do. You are the sole owner, and you can transfer it to any non-PDA keypair. The protocol simply prevents smart contract driven transfers via reference of a program allowlist/denylist. NFTs have always and will always operate within a framework of smart contracts. The introduction of the Creator Standard protocol does not change that. You and only you can determine where your NFT goes.
If you're a collection that hasn't minted yet, you can launch your collection on the Creator Standard today. We'll put you in touch with one of our launchpad partners to get the ball rolling.
If your collection has already minted, and you're interested in figuring out if your community would support a move to the Creator Standard, we're working on tools i.e. a user-led voting page and a migration page to understand if this route is something your community is willing to support.