Liquid Absolute Percentage

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Skip the Read - 1 Minute Summary

Every IP Asset has 100,000,000 Royalty Tokens associated with it, where each represents the right to 0.000001% of that IPA's revenue.

Let's come up with an example: An IP Asset ('C') is a child of 'B', and 'B' is a child of 'A', such that it goes A▶️B▶️C. 'A' specifies that any descendant must share 5% of their revenue with it. So, 'A' collects 5,000,000 Royalty Tokens from both 'B' and 'C'. On the other hand, 'B' specifies that any descendants must share 10% of their revenue with it. So, 'B' collects 10,000,000 Royalty Tokens from 'C'.

Okay, great. Let's see what happens in two (independent) common scenarios:

1. Minting a License - 'C' mints a license from 'B' that costs 100 USDC. When 'C' pays 'B' 100 USDC to mint a license, 'A' claims 5 USDC from B because it holds 5M of its Royalty Tokens. In the end, 'B' only gets 95 USDC.
2. Tipping Directly - 'C' is a comic book that is super well written. Someone tips 100 USDC to 'C' because they love it. 'A' claims 5 USDC from 'C' because it holds 5M of its Royalty Tokens. 'B' claims 10 USDC from 'C' because it holds 10M of its Royalty Tokens. In the end, 'C' only gets 85 USDC.

The Liquid Absolute Percentage (LAP) is currently the default (and only) royalty policy on every IP Asset. It defines that each parent IP Asset can choose a minimum royalty percentage that all of its downstream IP Assets in a derivative chain will share from their monetary gains as defined in the license agreement.

Prerequisites

Before continuing, make sure you have read the Royalty Module terminology.

LAP Royalty Payment and Claiming Flow

The first step to being able to claim revenue from an IP Asset that will receive it in the future is to obtain Royalty Tokens from that IP Asset. There are 3 ways to obtain Royalty Tokens of a given IP:

1. Be the IPA creator: Upon registering an IP Asset, the IPA creator receives 100% of the Royalty Token supply.
2. Own an IPA that is an ancestor of the IPA that receives revenue: The ancestor IPA has the right to claim a % of the Royalty Tokens of a derivate IPA based on the license terms that are in place.
3. Buy Royalty Tokens in the market: If Royalty Tokens are in the market, anyone can buy them.

Once any address owns Royalty Tokens of a given IPA, it is entitled to that % (% of the total supply of royalty tokens owned) of any future revenue token (that is whitelisted) gained by the IPA.

In the image below, IPA 1 and IPA 2 - due to being ancestors of IPA 4 - call collectRoyaltyTokens to get their 5% and 10% of RT4 supply, respectively. Note that, even if IPA 1 and IPA 2 do not collect the RT4 before a revenue token payment is made, those revenue tokens will not be lost and will be reserved in the IpRoyaltyVault for IPA 1 and IPA 2 until collectRoyaltyTokens is called.

Now, let's imagine a scenario where a new IP Asset 5 intends to join the derivative chain as a derivative of IP Asset 4. An example flow sequence below:

1. IP Asset 5 pays 1M USDC in royalties to its parent IPA 4 by calling payRoyaltyOnBehalf. Note that the royalty process is the same whether the payment is the license minting fee or any other royalty payment - with the difference being that the license minting fee is made via payLicenseMintingFee and is mandatory upon derivative creation.

2. Any address can call snapshot in the IpRoyaltyVault 4 contract. The snapshot function saves how much percentage of RT4 each token holder had at the snapshot moment. These percentages allow for splitting the 1M USDC paid in royalties among each RT4 holder. Note that snapshot does not need to be called on every payment - there can be multiple payments accumulated between each snapshot call. There is a minimum time interval between snapshots to contain the number of snapshots for gas-related reasons.
3. The Royalty Token holder address can call claimRevenueByTokenBatch and claimRevenueBySnapshotBatch to claim revenue tokens. In the current example:
   • 50k USDC are claimed to the IPA 1 which holds 5% RT4
   • 100k USDC are claimed to the IPA 2 which holds 10% RT4
   • 850k USDC are claimed by IPAsset 4 which holds 85% RT4

Note: Any RT4 holder can claim - whether it is a smart contract, IPA, or EOA.

Derivative chain configurations

The derivative chain can assume multiple configurations. Derivatives, due to gas costs on Sepolia, can have a maximum of 2 parents and 14 ancestors equivalent to 3 levels of a binary tree where 2+4+8=14. Note that this is why we are building Story Network, "The World's IP Blockchain", which will solve many of these limitations and be available for public testnet soon. A few currently possible configurations (given the restraints) are explained below:

• Configuration 1: shows the 3-level binary tree with each derivative always having 2 parents
• Configuration 2: shows a configuration of 14 ancestors where each derivative has 1 parent
• Configuration 3: shows a configuration where IPA 4 is a derivative of its parent (IPA 5) and its parent's parent (IPA 6) to showcase that it is a valid configuration

Multiple other configurations are valid in addition to the ones above, which are meant just to showcase a few examples of what is possible.

Obviously, each IP Asset is restricted to a total royalty % of 100%. It will revert when minting a license that would make the IPA reserve more than 100% of its royalty tokens for ancestors, since this would make no sense.

Licensing and LAP Royalty Flow Key Moments

• Registering an IP Asset on the platform: when registering a new IP Asset the user does not need to make any royalty-related decision. After registration, the user is free to (i) mint a license, (ii) link to parents, or (iii) do nothing.
• After IP Asset registration
  • Flow 1: The user decides to mint a commercial license first
    • By doing so: The user gains the right to mint as many commercial licenses as it wants of any royalty policy in the future in exchange for not being able to link to parents via commercial licenses
    • Non-commercial licenses are independent of commercial ones and can always be minted and used to link to parents by any IPA asset
  • Flow 2: The user decides to link an IPA to the parents' first
    • By doing so: The IPA inherits the same royalty policy of its parents as well as their ancestors
    • The user can mint as many commercial licenses as it wants as long as they belong to the same royalty policy as its parent IPAs