💸 Royalty Module

The Royalty Module defines how revenue flows between parent and child IP Assets. There are two common scenarios when revenue flow would happen:

1. Minting a License - sometimes there is a minting fee to mint a License Token from an IP Asset. When this is paid by someone (who wants to register a derivative or simply hold a license), the revenue should flow up the chain.
2. Tipping Directly - if someone sends revenue to an IP Asset directly, it should flow up the chain.

The below example (using Liquid Absolute Percentage) shows what happens when an IP Asset 4 (IPA4) tips IPA3 1M USDC.

1. Revenue first flows to the Royalty Module contract
2. Royalty Module sends USDC to both IPA3 and the LAP contract based on the royalty stack (15%)
3. LAP will distribute funds to further ancestors since they have negotiated some license agreement where they are due revenue from IPA3's earnings.

Don't worry if you don't understand everything in the picture, this is just to show you an overview of what the Royalty Module is all about.

Royalty Policies

Royalty policies are a component of the license agreement between two IP Assets. It defines how revenue flow actually happens.

The Royalty Module supports both whitelisted/native policies created by our team directly, and external ones created by you.

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Note on Royalty Policies

An IP Asset without any parents can mint licenses with different royalty policies while a derivative IP Asset inherits the royalty policy of its parents.

Additionally, there will always be one royalty policy governing every link an IP Asset has with each of its derivatives.

Whitelisted/Native Royalty Policies

These policies require governance whitelisting and guarantee royalty token distribution to ancestors.

1. Liquid Absolute Percentage (LAP)
2. Liquid Relative Percentage (LRP)

External Royalty Policies

These policies can be registered in a permission-less way and stipulate their own royalty and revenue distribution rules.

• External Royalty Policies

Royalty Token % vs Royalty Stack %

When creating a derivative, the creator will want to answer the question: "How much percentage of my IP earnings will I keep and how much will go to ancestor IPs?

To answer this question two concepts are important:

1. Royalty Token - Each IP Asset has 100,000,000 Royalty Tokens associated, where each token represents 0.000001% of the capital that enters each IP Royalty Vault. The holders of these Royalty Tokens can claim the Revenue Tokens that are in the associated IP Royalty Vault.
2. Royalty Stack - is the percentage of IP revenue that has to be paid to ancestors via Whitelisted/Native royalty policies. External royalty policies do not use the royalty stack percentgae - only Whitelisted/Native royaltys policies do.

Let's imagine the scenario below:

• IP1 is a root IP Asset.
• IP2 is a derivative of IP1.
• User A has 100% of Royalty Tokens of IP1
• User B has 20% of Royalty Tokens of IP2
• User C has 80% of Royalty Tokens of IP2
• IP2 Royalty Stack is 10% - meaning that all its ancestor IPs via Native/Whitelisted policies require IP2 to pay 10% of its revenue in order to create the derivative. In this case, there is only 1 ancestor which is IP1. IP1 demands 10% of IP2's future revenue in order to create a derivative.

In the image below there is an example of a one million USDC payment made to IP2. In the image we can see how much each Royalty Token holder of the entire derivative chain receives when the payment is made.

• RT Holder A - From the one million USDC payment gets 100k USDC. Royalty Stack percentage is paid first and RT Holder A has 100% of Royalty Tokens of IP1 so gets to keep the whole 100k USDC.
• RT Holder B - From the one million USDC payment gets 180k USDC. IP2 holders as a whole receive 900k USDC from the original one million USDC payment. Those 900k USDC are then split among the different Royalty Token holders of IP2 which are B and C. B has 20% of Royalty Tokens of IP2 so it receives 900k USDC * 20% = 180k.
• RT Holder C - From the one million USDC payment gets 720k USDC. IP2 holders as a whole receive 900k USDC from the original one million USDC payment. Those 900k USDC are then split among the different Royalty Token holders of IP2 which are B and C. C has 80% of Royalty Tokens of IP2 so it receives 900k USDC * 80% = 720k.

Derivative Chain Configurations

The derivative chain can assume multiple configurations.

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.