In addition to ERC-721 and ERC-1155, what are the new standards reshaping the NFT creative space?
Original Title: Beyond 721 & 1155: Revisiting The NFT Design Space
Original Author: Natalie Mullins
Translation: bayemon.eth, ChainCatcher
For the NFT market in the bull market, people usually pay attention to the trend of the Google search term "NFT" as an indicator of adoption and popularity. However, ironically, when a word disappears completely from the language, it may be a true signal of widespread adoption. When the three letters "NFT" fade out of the search box, it means that the vast majority of people in the market have a clear understanding of the concept of NFT, and they will no longer need to use the term "NFT" because "NFT" will have been refined into specific projects in people's casual conversations.
Source: The Block
However, in the bear market, people will focus on the "utility" of NFTs. Many people complain that since the introduction of ERC-721 six years ago, there has been a lack of non-speculative use cases and applications in the NFT market.
Although these different perspectives are all important, the continuous debate between them before the bull and bear market cycles can sometimes obscure the more important issues in the development of NFTs. This article aims to reexamine the fundamental principles of the utility of NFTs and mainly introduces the innovative standards that have emerged in recent years to extend the utility of NFTs and enhance user experience.
Stepping out of the market, establishing a broader perspective
Just as the government can freeze your bank account, seize funds, and prevent you from participating in (legal) banking system interactions, centralized content platforms and data monopolies have the same rights in the digital realm. This not only has a terrible impact on online censorship resistance, but also poses greater challenges such as highly anti-competitive market dynamics, hindering comprehensive innovation, and new issues of data privacy and commercialization in the face of increasing demand for valuable AI training data.
So why does the practicality of NFTs mainly focus on the provenance of (expensive) artworks and collectibles?
Typically, after a new technology emerges, the most clear and simple use cases often take the lead as people need more time to digest, understand, or brainstorm more possibilities for the technology. The slow development of the practicality and applications of NFTs can also be attributed to scalability challenges in the blockchain in recent years, which have limited the practicality of NFTs. For example, the latest ERC-6551 standard allows any ERC-721 token to be bound to a smart contract account, but additional functionality often comes with additional costs. As long as the creation, distribution, and participation in NFT projects remain costly for most people, engaging in low-cost or "non-speculative" NFT investments goes against their standards as "rational economic actors".
However, this situation is changing as the industry's significant investments in scalability are finally starting to pay off. Layer 2 solutions on Ethereum are gaining momentum, and Solana is also making strong progress in its unique architecture and leadership in token standard innovation.
Expanding the practicality of NFTs: Novel token standards
(Note: These standards are not necessarily mutually exclusive)
NFT Applications: xNFT
xNFT, also known as "executable" NFT, is a native Solana NFT standard. This standard uses the Backpack wallet as the operating system and key management layer to interact with xNFT-based applications. xNFT can be used to build collections (such as the PFP series of Mad Lads) or applications, but they are also symbols of certain code "execution rights", allowing developers to build more immersive projects with xNFT.
Staking Mad Labs xNFT generates reward points anchored to NFT
xNFT app store
What is unique about xNFT is that it functions similarly to on-chain software licenses. Developers can easily use the open-source code structure and control the number of installations, the identities of installers, installation fees, as well as track upgrades and user interactions of their xNFT applications.
Backpack team has recently launched a new feature called "Soul Abstraction", which not only provides similar functionality to NFT custody for xNFT, but also allows developers to build additional features or airdrop benefits to xNFT and its holders without permission or technical support from the Backpack team.
NFT Economies of Scale: Compressed NFTs (cNFTs)
As the name suggests, compressed NFTs are a new paradigm of NFTs achieved through state compression, developed by engineers from Solana Labs, Solana Foundation, and Metaplex. The idea originated from discussions in the community about the requirements for on-chain application data like Instagram, aiming to make "the unit marginal storage cost approach zero".
Simply put, the way state compression works is by storing the Merkle root of NFT data on the chain, while keeping the actual data off-chain. Even if the off-chain data is tampered with, the Merkle root will be different from the data stored on the chain, maintaining security. The correctness of NFT data is verified through the Bubblegum contract of Metaplex.
Do you really need to reduce costs to less than 1000 times? In fact, putting this issue on the agenda needs to wait until NFT becomes a truly ubiquitous "small image". "Everything can be token economics" has become a popular trend, and cNFTs are transforming Internet data into "persistent sovereign digital objects" on the chain, making it an economically viable option and capable of large-scale implementation.
This is one of the main reasons why it is important to continue reducing the cost of casting and issuing in terms of scalability. Layer 2 solutions like Arbitrum and Optimism have made remarkable progress in reducing transaction costs, compressing transaction costs by 10 times compared to Layer 1.
These improvements are by no means insignificant. Take Instagram as an example, even a cost of $0.10 to $0.50 is too expensive for many users. In fact, a more expensive cost is needed to address this seemingly "insignificant" usage cost. It's worth noting that Layer 2 is still far from solving these issues, but that doesn't prevent us from focusing on some early initiatives of Layer 2 NFT innovation below.
Examples of cNFTs used to enhance user experience:
DRiP
The DRiP platform, created by the team behind Solana Spaces, aims to build a crypto-native, creator-centered content distribution platform. By subscribing to their main channel, Showcase, users will receive free airdrops from the DRiP team every Wednesday. They can also optionally subscribe to more creator channels including Degen Poet, Degenerate Ape Academy, Vault Music, Floor, etc., to obtain a variety of digital collectibles airdropped to cNFTs.
cNFTs
DRiP
DRiP Creator Channel
If there is no cNFT, providing such a large-scale content for hundreds of thousands of subscribers will result in a significant increase in costs. It is worth noting that DRiP Season 2 distributed over two million NFTs to subscribers, with over 500,000 issued in just the past few days.
Dialect
The Web3 messaging platform Dialect has minted hundreds of thousands of tradable emoji packs as cNFTs. Users can leverage Dialect's smart messaging feature to directly buy and sell assets within the messaging interface.
Helium
As an application migrating from its own Layer 1 network to Solana, Helium now uses cNFTs as proxies to bring its nearly one million unique physical hotspot devices on-chain. Hotspot device operators can claim NFTs after logging into the wallet associated with their hotspot devices.
Metaplex
After its Mailchimp account was shut down, NFT infrastructure provider Metaplex turned to using cNFTs to send invites to its new creator studios. Metaplex is now collaborating with Underdog Protocol to develop a more cost-effective and crypto-native alternative tool.
NFTs with Superpowers - Dynamic NFTs, Private NFTs, NFT Hosting, NFT Fusion
Dynamic NFT
Dynamic NFT, which can update metadata based on specific on-chain or off-chain events, is a subtle but disruptive superpower. Dynamic NFTs with this capability are generally more meaningful than their static counterparts in almost all situations. Furthermore, to make the deployment and management processes more seamless and standardized, dynamic NFTs also emphasize high requirements for encrypted native databases and infrastructures.
Private NFT
One of the earliest examples of private NFT can be traced back to the SNIP-721 standard on Secret Network, where Quentin Tarantino released the "Unleased Pulp Fiction Scene" as an NFT in 2021.
Other solutions also involve Lit Protocol for access control and Arweave to achieve permissioned access to encrypted metadata. For instance, the music platform Vault Music based on Solana uses this solution to provide private NFTs to its users.
Quentin Tarantino's "Pulp Fiction" private NFT
Vault Music Private NFT
NFT Hosting and NFT Fusion
Another native standard of Solana, NFT Hosting is an extension of the Metaplex token metadata contract. This standard allows any NFT to operate as a wallet and hold its own tokens. It implements two different types of hosting account methods: Own Hosting managed by the NFT holder (TOE) and Own Hosting managed by specific creators (COE). The recently released ERC-6551 also marks the entry of this feature into the current EVM ecosystem.
NFT Fusion is an extension solution for NFT hosting, enabling NFTs to be bundled together to create new NFTs and change based on the assets they hold.
Both standards lay a solid foundation for building immersive gaming experiences, allowing players to freely experience token interactions and level upgrades in these two schemes.
AIGC NFTs: NFTs that utilize artificial intelligence generated content as a mechanism for trust and proof
EIP-7007 proposed an ERC-721 wrapper that includes functions for validating the combination of hints and proofs using zkML technology. The metadata schema also provides a structure for storing information about AIGC-NFTs such as hints, content, ownership proofs, etc. In practice, creators of machine learning models can publish their models and corresponding ZKP validators on Ethereum, users can declare an input hint, submit an inference task, and ultimately receive the output in the form of an NFT. The proposers of this EIP see it as a way to facilitate the commercialization of small-scale models.
NFTs in the Financial Sector: DeFi and RWA
While DeFi might not seem like an obvious place to find novel NFT use cases, it turns out that many financial assets, especially derivatives, are non-fungible (which is why Uniswap uses the ERC-721 standard to define V3 LP positions). As such, NFTs have several non-obvious use cases in DeFi:
Panoptic (a centralized liquidity market maker and NFT)
Panoptic is a crypto-native perpetual options protocol based on Uniswap V3 LP positions. Due to the high capital efficiency issue of options requiring collateral, the team turned to NFTs to seek a solution for low collateral rate options.
Panoptic essentially replaces Uniswap's non-fungible LP position manager with a semi-fungible position manager, using the ERC-1155 interface instead of ERC-721. This allows them to merge multiple options into a single NFT to create "custom risk positions," making it easier to calculate the collateral requirements of a set of interrelated options. Therefore, this is particularly useful for multi-leg options with an overall risk definition configuration profile, even if individual options within it may theoretically face infinite losses, the overall risk of the options can be specifically assessed.
Pantopic uses ERC-1155's tokenID to refer to the information of option positions
Homebase (RWA)
Homebase is a platform that allows users to invest in tokenized residential real estate for as low as $100. It converts assets on the trading platform into NFTs, with each token having its unique metadata URI where information about the asset is stored on the blockchain and regularly updated.
While Homebase and other RWA/NFT financing platforms may seem like a game of make-believe today, they actually highlight the importance of the financial infrastructure built specifically for NFTs. Most assets and many financial positions are fungible or semi-fungible in nature. These examples also showcase the possibilities that can be achieved by putting more financial metadata on-chain (more on this matter will be discussed later).
Challenges of the infrastructure
Although the discussed use cases above are exciting, the severe fragmentation of NFT metadata remains a significant barrier to realizing the full potential of NFTs, whether it be in terms of incentive mechanisms or data standards. Nowadays, NFTs exist on various Layer 1 chains and Rollup chains, and the decentralization of metadata is reflected in the specific aspects such as metadata storage location, compatibility with EVM, and storage methods.
The key is that as NFTs become containers for more and more content, assets, and experiences, the need for a decentralized, Web3-based database becomes more and more urgent in order to bring more composability and functionality to the metadata layer. Ideally, such a database would release data "trapped in centralized walls" as much as possible and allow for finer exchange between entities.
A promising example of such a product is Tableland, a specially designed SQLite database solution for Web3 development. Tableland can be seen as an intermediate layer between Filecoin storage and EVM smart contract logic, allowing the database to be programmable directly from smart contracts. For example, developers can allow the owner of a specific NFT to change certain cells and/or rows based on the results of certain on-chain events. Although there is still a lot of work to be done in adapting to evolving token standards and ecosystems, it cannot be denied that Tableland has found the right direction.
Learn more: Here you can view the list of database and metadata solutions planned by Tableland.
As artificial intelligence and the digital economy advance closer to human life, threading the needle between extracting/controlling data and protecting digital assets will become increasingly challenging. NFTs may present the best opportunity to break down the barriers between data control and protecting digital assets.
