Crypto Gloss

Royalty Bypass

Royalty bypass is any transaction method or marketplace routing that allows an NFT secondary sale to complete without paying the creator’s specified royalty percentage — technically possible because ERC-2981 (the royalty standard) is a metadata specification that signals the intended royalty to marketplaces but is not enforced at the EVM transfer level, meaning any marketplace or direct wallet-to-wallet transfer can technically route around it — with the practice scaling from individual peer-to-peer trades to systematic marketplace-level policies of treating royalties as optional, a development that became central to the “royalty wars” of 2022–2023 and fundamentally reshaped the economics of NFT creator income. Royalty bypass is not a hack or exploit — it exploits a genuine gap between the social expectation embedded in ERC-2981 and the technical reality that EVM token transfers cannot be made to automatically pay royalties without smart contract-level enforcement (which creates its own trade-offs).

Why Bypass Is Technically Possible

How ERC-721 Transfers Actually Work

ERC-721 transferFrom(from, to, tokenId):

  1. Checks approval (is caller approved to move this token?)
  2. Updates ownership mapping: owners[tokenId] = to
  3. Emits Transfer event
  4. Done.

No royalty payment step exists in the ERC-721 standard.

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ERC-2981: Signal, Not Enforcement

// ERC-2981: royaltyInfo() tells callers what royalty SHOULD be paid

function royaltyInfo(uint256 tokenId, uint256 salePrice)

returns (address receiver, uint256 royaltyAmount) {

// Returns (creator address, 5% of salePrice)

return (creator, salePrice * 500 / 10000);

}

// But nothing prevents calling transferFrom without paying it

// ERC-2981 is advisory, not mandatory

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The royalty standard tells marketplaces “you should pay X.” It does not force them to.

Methods of Royalty Bypass

1. Marketplace-Level Optional Royalties

  • Sellers could choose 0% royalty to attract more buyers
  • Buyers paid lower effective price; sellers received more after-fee proceeds
  • Creator received nothing
  • Volume concentrated on these platforms because of lower total transaction cost

2. Peer-to-Peer (P2P) Direct Trades

  • Seller calls transferFrom or uses safeTransferFrom
  • Buyer sends ETH directly to seller in a separate transaction (or via a custom contract)
  • No marketplace = no royalty payment mechanism
  • Common for large OTC (over-the-counter) deals between whales

3. Custom Aggregator Routing

  • Aggregator contract buys from multiple sources in one transaction
  • Royalty payment depends on aggregator’s implementation
  • Some aggregators paid royalties; others passed through only what the source marketplace paid

4. Wrap-and-Unwrap Schemes

Impact on Creator Royalty Income

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2021–2022 (Royalty enforcement era):

Collection A floor: 1 ETH

OpenSea volume: 10,000 ETH/month

Royalty rate: 7.5%

Creator monthly income: 750 ETH

2023 (Post-Blur, optional royalties):

Same floor, same volume

Effective royalty paid: ~1.5% (most sales on Blur at optional 0%)

Creator monthly income: 150 ETH

→ 80% income reduction

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For large collections (BAYC, Azuki), this represented millions of dollars in lost monthly income. For smaller collections, it often made ongoing development economically unviable.

The Moral Debate

“Bypass is legitimate”

  • Royalties were never enforceable at the protocol level; they were marketplace convention
  • Market competition on price (including royalty cost) is normal and healthy
  • Creators benefit more from volume than royalty rate; lower friction → more trades

“Bypass harms the ecosystem”

  • Secondary buyers implicitly accepted royalty terms when they bought from royalty-paying collections
  • Race-to-zero on royalties harms creator incentive to build → fewer quality collections → worse ecosystem overall
  • Large marketplace players have asymmetric power to set norms that harm creators

Post-Bypass Landscape

By 2024:

  • Royalty bypass normalized; optional royalties the default on most volume
  • Creators adapted: token launches, brand deals, IP licensing replace royalty income
  • Some new collections launched with no royalty at all (preemptively acknowledging market reality)
  • Royalty enforcement via operator filters largely abandoned
  • The royalty model persists for niche collections prioritizing creator income over volume

History

  • 2021: Royalties paid voluntarily on OpenSea; effectively enforced by market norm
  • 2022: LooksRare/X2Y2 introduce optional royalties; bypass begins at scale
  • 2023 Jan: Blur launches with 0% optional royalties; volume leaves OpenSea
  • 2023: OpenSea deploys OperatorFilter (enforcement attempt); partial success; Blur workarounds
  • 2023 Aug: OpenSea abandons enforcement; bypass becomes market standard
  • 2024–2025: Optional (≈0%) royalties normalized; creator royalty income significantly lower than 2021–2022

See Also