Why On-Chain IP Keeps Failing — The Distribution-vs-Monetization Dilemma Exposed by Sony's Soneium and Story Protocol

### 1. The Technical Limit: Rights Cannot Be Enforced On-Chain Smart contracts promise "code as contract," but they cannot substitute for legal enforcement of copyright or licensing agreements. The joint USPTO/USCO Report to Congress (March 2024) concluded that while NFT pseudonymity and decentralized storage complicate rights enforcement, no new IP legislation is necessary. Smart contracts can automate royalty payments, but when users circumvent them, enforcement still depends on off-chain courts. The crypto-native ideal of "code is law" does not function in the IP domain. ### 2. The Royalty Collapse: Marketplaces Proved On-Chain Enforcement Is Brittle The most telling failure is the NFT royalty race-to-the-bottom. From October 2022 onward, X2Y2, LooksRare, and Magic Eden made royalties optional. Blur, with zero royalties and trading mining, overtook OpenSea by trading volume in February 2023. OpenSea itself abandoned enforcement on legacy collections in August 2023. After LooksRare made royalties optional, royalty income dropped close to zero. Yuga Labs and others formed OMA3 to standardize enforcement, but the structural limitation — blockchains cannot enforce conditions on token transfers — remains. Creator income depends on platform goodwill. ### 3. Story Protocol — A $2.25B Valuation Meets Empty Demand Story Protocol, which raised a total of USD 140 million (approx. JPY 21 billion) led by a16z and reached a USD 2.25 billion (approx. JPY 340 billion) valuation in 2024, is also struggling. Per CoinDesk (February 2026), the $IP token carries a market cap around USD 500 million (approx. JPY 75 billion), yet daily on-chain revenue is under USD 100. After peaking at USD 43,000 in September 2025, daily revenue fell to effectively zero by early 2026. In February 2026, the team postponed its token unlock from February to August 2026 — a six-month delay — and pivoted from "media IP registration" toward licensing "unscrapable" human-generated data for AI training. Co-founder Jason Zhao left for a new AI venture in August 2025; PIP Labs cut 10% of staff in March 2026. The gap between an "IP-specific L1" thesis and real-world demand is now visible. ### 4. The Distribution-vs-Monetization Dilemma IP gains recognition through distribution, but monetization requires usage restrictions and rights enforcement — this is the core tension of on-chain IP. If creators tightly restrict rights, remix culture and UGC virality wither. If they open up via CC0, projects like Pudgy Penguins can scale through derivatives and merchandise, but the original rights-holder loses direct monetization. Story Protocol's Programmable IP License (PIL) attempts to bridge both, but license-selection complexity and off-chain enforcement costs remain adoption barriers. ### 5. Sony's Bet — Vertical Integration and Institutional Design Sony, as referenced in the original article, is uniquely combining its L2 chain Soneium, the S.BLOX exchange, the SPARK incubation program (2,000+ applications, 23 investments), a planned GP/LP fund, and bespoke IP legal frameworks. Since the January 2025 mainnet launch, Soneium has processed over 500 million transactions with 5.4 million active wallets and over 250 dApps. However, prior failures persist — Korea's Momentrica shut down in July 2025 with cumulative operating losses of KRW 13 billion (approx. JPY 1.4 billion). The proposition that "infrastructure alone does not generate demand" still looms large, which is why Hatano emphasizes the need for "killer use cases." [Business Development Insights] 1. Smart contracts promise "code as contract," but they cannot substitute for legal enforcement of copyright or licensing agreements. 2. The most telling failure is the NFT royalty race-to-the-bottom. 3. 1. Smart contracts promise "code as contract," but they cannot substitute for legal enforcement of copyright or licensing agreements. [Sources] NADA NEWS (April 17, 2026) / CoinDesk "Story delays $IP token unlock by 6 months" (February 2, 2026) and "Story co-founder defends token unlock delay" (February 9, 2026) / Decrypt "NFT Creator Royalties Are Broken" (October 2023) / USPTO/USCO "Non-Fungible Tokens and Intellectual Property: A Report to Congress" (March 2024) / The Block "Sony Innovation Fund invests $13 million in Startale" (January 28, 2026) / BeInCrypto (November 28, 2025) / Cointelegraph (December 2022)