Position: LLM Watermarking Should Align Stakeholders' Incentives for Practical Adoption

Despite progress in watermarking algorithms for large language models (LLMs), real-world deployment remains limited. We argue that this gap stems from misaligned incentives among LLM providers, platforms, and end users, which manifest as three key barriers: competitive risk, detection-tool governance, and attribution issues. We revisit three classes of watermarking through this lens. Model watermarking naturally aligns with LLM provider interests, yet faces new challenges in open-source ecosystems. LLM text watermarking offers modest provider benefit when framed solely as an anti-misuse tool, but can gain traction in narrowly scoped settings such as dataset de-contamination or user-controlled provenance. In-context watermarking (ICW) is tailored for trusted parties, such as conference organizers or educators, who embed hidden watermarking instructions into documents. If a dishonest reviewer or student submits this text to an LLM, the output carries a detectable watermark indicating misuse. This setup aligns incentives: users experience no quality loss, trusted parties gain a detection tool, and LLM providers remain neutral by simply following watermark instructions. We advocate for a broader exploration of incentive-aligned methods, with ICW as an example, in domains where trusted parties need reliable tools to detect misuse. More broadly, we distill design principles for incentive-aligned, domain-specific watermarking and outline future research directions. Our position is that the practical adoption of LLM watermarking requires aligning stakeholder incentives in targeted application domains and fostering active community engagement.