FeverTokens’ Implementation of Royalty Enforcement with Kleros

One of the most important draws of NFT as a medium for art is the possibility to include royalties for the secondary market. The same idea has been extended to other use cases in web3. However, smart contracts alone cannot enforce royalties, as it cannot be made aware of payments made outside of it. Hence, it is incumbent upon the marketplace to honor royalties, and private transactions seldom do.

FeverTokens has partnered up with Kleros, the decentralized arbitration service for web3, to offer a robust and minimally intrusive solution with two steps.

First, the owners of the collection can watch the transactions of their NFTs by monitoring the blockchain. When they notice a transaction without payment of royalty, they can initiate the royalty default process with Kleros by depositing arbitration fees.

Second, as the royalty default process starts, the NFT is moved to the seizure smart contract. The buyer has three options:

Option 1

Pay the royalty, including applicable late fees. Upon payment, s/he receives the NFT. The collection owner gets his/her deposit back.

Option 2

Do nothing. When the arbitration window is closed, the NFT is sent to the default address, which can be the collection owner, an auction contract, a charity, or even a burn address, etc. The collection owner gets his/her deposit back.

Option 3

Dispute the claim. In this case, the buyer will need to deposit arbitration fees. The standard arbitration process starts. The jurors will determine whether the buyer failed to pay the royalties and whether the requested amount is warranted.

a. If the answer is Yes, the collection owner gets his/her deposit back, and the buyer loses his/her deposit. The buyer is left with option 1 and 2.

b. If the answer is No, the buyer has his/her NFT back, and the collection owner loses his/her deposit.

It should be noted that transferring the NFT from one wallet to another of the same owner is not a royalty transaction. Transferring the NFT to a marketplace or a lending protocol as a collateral is not a royalty transaction, either.