Limit Break may have just saved NFTs with the creation of ERC721-C. This upgrade to Ethereum’s ERC721 token standard dramatically increases creators’ control over royalties. What is the ERC721-C standard?
What is ERC721-C?
Quite simply, ERC721-C allows for programmable royalties. Limit Break, the free-to-play gaming studio behind DigiDaigaku, introduced the new technology earlier this month. Projects can now opt-in to the ERC721-C standard at any time. After that, individual NFT holders can also choose to opt in to gain the full benefits of the upgrade.
This advancement adds many interesting new options for project founders. For example, projects can set royalties to zero for any NFT that sells beneath the mint price. This helps address a common complaint some collectors have raised– if a project fails to gain traction and minters lose money by holding, should they be forced to pay a royalty on top of their loss? Opinions are varied, but at least with ERC721-C, projects have the option of eliminating royalties in this situation.
Additionally, projects can program royalties to only kick in any given NFT on the fifth time (or sixth, tenth, etc) it’s been sold. This can be advertised as a selling point to help attract minters during a down year for NFTs.
Projects can also decide to reward their most loyal holders using ERC721-C. Let’s say a project wants to award anyone who has held an NFT for more than a year. The project can turn off royalties for these holders by eliminating royalties as a thank you for their support.
Sharing royalties between projects and holders is another compelling use case for ERC721-C. By offering revenue based on the project’s success, NFT collections can truly create a Win-Win mentality between teams and founders.
Most importantly, however, projects can use ERC721-C to hard code royalties into the NFTs themselves. By doing so, projects can guarantee platforms like Blur and OpenSea can’t set royalties to zero. This is hugely important for the future of Web3.
Why are royalties important?
Since Blur disrupted the NFT market with its zero royalty platform, NFTs have suffered. Airdrop farmers have taken advantage of not paying royalties and poured massive volume into wash trading NFTs. In the process, these farmers took the fungibility out of non-fungible tokens and destroyed many projects’ floors, making NFTs feel more like altcoins than anything else.
Not only does this put small traders at a disadvantage, but it also has soured many creators on Web3. Projects rely on royalties to pay operational costs. Once they are taken away, founders have significantly less incentive to build and continue to improve projects.
Now that projects can use ERC721-C to enforce royalties, there should hopefully be a return to normalcy for NFTs. Projects will have the necessary war chests to run their businesses and founders won’t need to feel animosity towards their communities for avoiding royalties. Furthermore, there will be a new range of utility teams can offer their holders. This should help usher in a new NFT cycle in which projects and communities are more closely aligned.
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