The Create Protocol has four components: the NFT minting mechanism, a native utility and governance token, a DAO, and a treasury.

Any creator may propose minting an NFT drop to the DAO by staking a certain amount of token. The DAO then votes on whether that NFT drop should get minted by the protocol. Members of the DAO use staked tokens to vote. If the vote doesn’t pass, then the proposer loses their stake. If it does pass, then the proposer earns a fee, denominated in the native token, taken from block rewards.

Once the vote passes, the NFT drop is minted, and the protocol auctions off the NFTs in a Dutch auction. The protocol sets a royalty rate for resales (default 10%), and a royalty split (for both the initial sale and resales) between the creator, the purchaser, and the protocol. All proceeds from the initial auction and resales are sent to the protocol, which swaps the proceeds for the native token on a DEX, and then sends the native token to the creator, purchaser, protocol, and client, according to the royalty split determined by the protocol. The proceeds that are sent to the protocol are held in the DAO’s treasury. The proceeds that are sent to the purchaser are locked for a certain time period.

This mechanism ensures two things: first, from a governance perspective, that governance tokens are distributed to those who participate in the bootstrapping of the network – the creators and purchasers. Second, that the more popular the NFTs minted through the protocol, the higher the demand for the native token.