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# System prepended metadata

title: Palette Protocol

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<img src='https://i.imgur.com/hbVtB3F.png'/>
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## Introduction

Palette Protocol is a decentralized on-chain order book enshrined on [Frame Network](https://www.frame.xyz/). Palette democratizes NFT liquidity, facilitates trading on-chain, and enforces royalties. This protocol is designed to empower creators by paying out royalties and preventing large centralized marketplaces from dictating how NFTs should be traded. It is fully decentralized and open for everyone to use.

## Architecture
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## Fully On-Chain

Palette provides a secure and transparent mechanism for NFT trading. All buying, selling, and bidding is done completely on-chain without the need for centralized backend servers. At its core, Palette is a set of composable smart contracts that any third-party can easily build on top of. To use this protocol, applications can simply read from or call external functions in the Palette smart contracts.

## Royalty Enforcement

**All trades done on Palette pay out royalties**. Palette fetchs a collection’s royalty information either from the contract’s [ERC2981](https://eips.ethereum.org/EIPS/eip-2981) spec or from a global registry. Sellers will be deducted the royalty amount from their payout upon trade completion. Royalties play a crucial role in motivating creators to create digital assets; Palette seeks to reintroduce this incentive within the Web3 ecosystem.

To enable royalty enforcement, collections will need to whitelist Palette as an approved operator to transfer assets. Unfortunately without this whitelist mechanism, a dishonest actor can use an ERC721’s transfer functions to be a build a royalty-free marketplace (as we’ve seen on mainnet). While a whitelist sounds restrictive on the surface, **Palette allows for any number of marketplaces to be permissionlessly built on top of it**. Previously, a collection needed to constantly maintain a whitelist of all honest actors. Now, creators only need to whitelist Palette, which guarantees that all enabled marketplaces are respecting creators.

## Aggregated Liquidity

Palette aims to be a one-stop shop for all NFT liquidity on Frame. By consolidating liquidity, **marketplaces have instant access to all listings and core trading functionality**. This reduces fragmentation and prevents marketplaces from incentivizing misaligned behaviors. **Marketplaces can instead focus on creating better trading experiences for their specific audiences.**

A side effect of democratizing liquidity is that large centralized marketplaces will no longer have the ability to create policies that affect the entire NFT market. In late 2022, we saw marketplaces introduce [royalty policies](https://twitter.com/opensea/status/1589058770646491136) that both reduced total royalties paid and caused confusion on how to qualify for royalties. **Ultimately, it should be the creator that determines what their royalty percentages should be, not the marketplaces.**

Because Palette is fully on-chain, it can also serve as a price oracle for collections. All listings and past sales are fully on-chain and available to everyone. This info has historically been fragmented and lived on off-chain systems that are inaccessible to most people. With Palette, new innovations in NFTFi and the broader NFT market are now possible due to having a more reliable and accessible price oracle.

## Network Enshrinement

Palette is a set of smart contracts enshrined into the network itself. This means the contracts will be deployed at a special address upon chain genesis ([predeploy](https://github.com/ethereum-optimism/optimism/blob/develop/specs/predeploys.md)). Additionally, at the execution level, **interactions with Palette will be made cheaper with overridden gas costs**. When compared to other rollups leveraging similar tech stacks, Frame will have lower transaction fees.