Major commerce breakthrough: enabling creator royalties on secondary sales of physical products.
Summary
This post gives an overview of Boson Protocol v2.4 ‘Schrödinger Update’ features, including:
- Royalties on secondary sales of physical products, via Sequential Commit and Perpetual Royalties features.
- Algorithmic price discovery.
1. Introduction
Boson Protocol v1 was initially described in our whitepaper v1, and v1 launched in 2021 as the world’s open, public infrastructure layer for commerce. The protocol received a major upgrade to a more scalable and efficient optimistic design in 2022, as defined in whitepaper v2.
The Boson Protocol v2.4 ‘Schrödinger Update’ is our biggest protocol upgrade since v2. Schrödinger represents a major breakthrough in commerce with creator royalties on secondary sales of physical products, and enables sellers to obtain best prices via auctioned physical NFT drops on their own site or marketplaces like Opensea via Algorithmic Price Discovery.
- Enabling creator royalties on secondary sales of physical products
To date, enabling creator royalties on secondary sales of physical products, has not been possible. At present, if a creator sells a physical item, be it a luxury handbag or a piece of art – the initial / primary sale is the only revenue they receive; even if the item is resold many times and appreciates in value – no further value is returned to the creator.
With digital items, including NFTs, there are solutions to enable creator royalties on secondary sales, albeit imperfectly. However, secondary sale royalties has been an intractable problem for physical products. Until now.
The Boson ‘Schrödinger Update’ represents a major commerce breakthrough by enabling royalties on secondary sales of physical products.
Here’s how…
The core problem that Boson solves is enabling what economists call fair exchange between a buyer and a seller, who do not necessarily trust each other. Boson does this by locking up funds until the transaction has successfully completed, that way if there is a dispute the protocol can divide the funds according to the decision of the dispute resolution process.
So the buyer commits funds and receives a redeemable NFT which she can redeem or trade. But if the Buyer trades this NFT for a higher amount we get a problem.
Problem 1: preventing partial rugpulls for secondary sales of redeemable NFTs
In Boson Protocol v1 & v2.0 vouchers are only backed by funds relating to the primary sale. In this current architecture Boson Protocol fully protects buyers on the primary market but only partially protects buyers on the secondary market. This could result in buyers ending up with a loss when buying on the secondary market, if the seller fails to deliver on their promise.
Example 1
Suppose Alice commits to an offer with a price of 100 USDC and a seller deposit of 10 USDC, Alice then sells the voucher to Bob for 200 USDC. Bob redeems the voucher but doesn’t receive the item and raises a dispute. In this case of the seller failing to fulfil their promise, Bob can only receive a refund of 110USDC (price + seller deposit) instead of the 200 USDC he used to purchase the voucher – losing a total of 90 USDC. We call this a partial rugpull.
Problem 2: enabling creator royalties on secondary sales of physical products
The generic challenge of enabling creator royalties on secondary sales of physical products lies in the economic disincentive for secondary buyers to engage in on-platform (or, in our case, on-protocol) transactions, where they will incur additional fees. Consequently, buyers are incentivized to conduct secondary sales off-protocol.
The neat thing is that we can use the solution to Problem 1 (preventing partial rugpulls for secondary sales of redeemable NFTs) to solve Problem 2 (enabling creator royalties on secondary sales of physical products). THis works as follows:
- Boson’s new sequential commit feature provides buyer protection from partial rugpulls, for secondary sales which happen in-protocol.
- This provides an incentive to perform secondary sales in-protocol.
- Once secondary sales happen in-protocol, Boson can enforce creator royalties on secondary sales of physical products. We call this feature ‘Perpetual Royalties’. Details below…
Sequential Commit
With Sequential Commit, secondary buyers of a Boson exchange get the same protection as primary buyers. During each sequential commit, additional funds get locked in escrow in a capital efficient way – a minimal amount to cover all possible outcomes is kept in the escrow and the remainder is released to the reseller immediately. When the exchange is finalized, resellers get fully paid out depending on the final exchange state, or the buyers are compensated if the item is not delivered in the expected condition.
Example 2 (above example with sequential commit)
Alice commits to an offer with a price of 100 USDC and a seller deposit of 10 USDC, Alice then sells the voucher to Bob for 200 USDC.
Alice immediately receives the 100 USDC initial price she paid, since the protocol is optimally capital efficient and will not need this amount under any outcome. (Alice would receive the remaining 100USDC only if the exchange is successful.)
Bob redeems the voucher but doesn’t receive the item and raises a dispute. Bob escalates the dispute and receives back the secondary market price he paid (200USDC) and the seller deposit (10USDC).
Alice receives no further funds and is made whole, as is Bob.
Perpetual Royalties
Perpetual Royalties enables royalties to be set at the offer level and enables all royalties to be paid out to recipients assigned to the offer, including those on secondary sales. For all sequential commits, Boson protocol enforces royalties on-chain. With the update, sellers get even better control over royalties, since they can assign multiple recipients per offer natively in the protocol in a way, fully compatible with Royalty Registry.
- Algorithmic Price Discovery
Before v2.4.0 release, sellers could create only offers with fixed prices. If they wanted to offer (primary sale) the same item on an external marketplace (for example OpenSea), they could do it by preminting rNFTs and listing them. This was more capital-intensive than selling only in Boson dApp, since it required them to deposit more funds in the protocol in order to satisfy escrow requirements.
With Boson Protocol release v2.4.0, sellers will be able to leverage the external price discovery mechanisms to sell their products at the best price. This will allow for greater flexibility with pricing and will open new possibilities for building on top of Boson. On top of that, it does not require sellers to provide additional capital upfront to fund the escrow. For example, sellers can now use auctions or AMMs for the primary sale whether on platforms like OpenSea or directly on doing auctioned physical NFT drops on their own site.
Boson price discovery can be used in two ways, depending on how the external price discovery mechanism operates.
- With native rNFTs.
If the price discovery mechanism does not require locking rNFT in their contract and allows only the buyer or the seller to finalize the transaction, then the seller can use preminted rNFTs directly. They list them on an external price discovery mechanism, do the majority of the process there and only finalize the transaction through Boson Protocol. - With wrapped rNFTs.
If the price discovery mechanism requires depositing of rNFT, or additional security guarantees are needed (e.g. restrictions on who can finalize the transaction or preventing the seller from hiding the true price from the Boson Protocol), then Boson rNFTs must first be wrapped (i.e. deposited into wrapper contract) and then wrapped rNFT (WrNFT) are plugged into the external price discovery.
These approaches can be used both in the initial sale and in secondary sales (sequential commits). The benefits of using them instead of simply listing the rNFTs on secondary marketplaces are that they give the buyer all Boson Protocol guarantees and that they enforce the royalties on the protocol level.
- Conclusion
The Boson Protocol v2.4 ‘Schrödinger Update’ is our biggest protocol upgrade since v2. Schrödinger represents a major breakthrough in commerce with creator royalties on secondary sales of physical products, and enables sellers to obtain best prices via auctioned physical NFT drops on their own site or marketplaces like Opensea via Algorithmic Price Discovery.
