Original Author: six0hfour, Typus Team
Original Translation: Kyrie
Original Source: Typus Finance
This study aims to explore Sui's object-based programming model and how it utilizes various NFT structures to contribute to the widespread application of DeFi.
We previously wrote a report explaining why we believe Sui is the best choice for defining and establishing blockchain-based native assets for DeFi. Sui's foundational design captures the essence of digital assets on the blockchain and enables smart contracts to operate on them, replacing the need for intermediaries.
Differences between On-chain and Off-chain
On blockchains like EVM or Solana, the state of digital assets, or NFTs, is stored off-chain. For static NFTs, this is an acceptable model as these NFTs aren't transferred or undergo any state changes.
A simple analogy is a Merkle tree where NFTs are the leaves and only the root of the tree is published on the blockchain.
This model is efficient if users frequently create new NFTs and then don't interact with them. They don't need to make any modifications or transfers. However, if one of the NFTs needs to be transferred or updated, it becomes more expensive and requires longer transaction hashes. Since only the root of the tree is published on the blockchain, each update requires a Merkle proof. Even reading the NFT requires a Merkle proof.
Recently, a paper titled "Limitations of Revocation Proof Systems: Impact on Stateless Blockchains" was published by a16z crypto, discussing the concept of stateless blockchains and its trade-offs. The concept arises from a challenge to the blockchain paradigm, where traditionally each validator needs to store the entire state of the system. This requirement has raised concerns about centralization, as storing the growing state becomes affordable only for well-funded organizations.
This brings up the concept of designing stateless blockchains, which suggests validators only store a small part of the global state of the system (e.g., just the root of the Merkle tree). Users needing to make transactions must provide proofs that their transactions are valid (e.g., Merkle proof paths to the leaves).
The paper identifies an issue: "...when other (unrelated) transactions update the global state, users must monitor the network and update their proofs periodically, which could render their proofs invalid." Unfortunately, this introduces new security threats as off-chain state management becomes quite cumbersome.
When metadata exists off-chain, the invocation of smart contracts involves
Access to this will be limited. This not only fails to improve product efficiency but also distribution efficiency. Fundamentally, it does not fulfill the purpose of decentralized infrastructure.Sui allows us to store the metadata of NFT completely on-chain, and the most notable feature is the ability to store large amounts of arbitrary data on-chain. In our previous reports, we provided an analogy regarding the traditional cost structure of storage operations.
Let's use a simple example to illustrate the problem with traditional cost structure:
Alice started using Sui Network since its early days when there wasn't much data stored on-chain, and she enjoyed lower gas fees.
On the other hand, Bob started using Sui Network after it matured, and by that time, a large amount of data had been stored on-chain, resulting in higher gas fees for Bob.
Sui's token economic model addresses storage costs by utilizing a storage fund, specifically redistributing past transaction fees to future validators. When there is high storage demand on the chain, validators receive additional rewards to compensate for their costs, and when storage demand is low, rewards decrease accordingly.
It also includes a deletion option that allows users to get a refund by deleting previously stored on-chain data. This mechanism ensures that users only store necessary data on the chain. This leasing model, which pays storage fees on a periodic basis, is highly efficient for projects on Sui. When storage costs become uneconomical, it introduces a market-based mechanism to release storage space.
Storing metadata on the chain ensures the programmability of tokens. Assets may undergo mutations and sometimes combinations. Storing structures on the chain in an object-oriented language like Sui helps with composability. If NFTs can communicate with each other, even from different formats of NFTs, it will open up new verticals.
On other blockchains, NFTs are merely ownership records that include a URL pointing to specific off-chain storage. It is widely known that this imposes many limitations on the comprehensive application of blockchain.
Unlike other blockchains, Sui can store jpeg images on the chain and has rich mutable and immutable properties. NFTs are more than what we know today; they have become on-chain applications with stateful dynamic characteristics in Sui. This will ultimately drive more creativity, user adoption, and consumer value.
Dynamic Scalability
Sui's vision for NFTs provides a different imaginative space for blockchain. Assets are dynamic; they mutate, go through life cycles, and sometimes even combine. For this, we need an infrastructure that allows us to accurately simulate the life cycles of these assets.
If NFTs cannot simulate complex and evolving assets, their utility is limited to static assets such as currency and static PFPs. The dynamic field in Sui effectively simulates the life cycle of dynamic assets; they can store heterogeneous values and are only influenced by gas fees when accessed, and can be added or removed at any time.
Imagine what composability and conditional logic can create:
An NFT that evolves based on your trading activity on DeFi protocols, providing dynamic rewards as you level up.
An on-chain structured product that reflects changes in our macro environment.
An artwork that changes when the artist signs or auctions it.
A gaming asset that upgrades when you lead a battle or enter the top ten player rankings.
Sui's programming language allows modeling these lifecycles at a fundamental level. The evolvability of these assets does not depend on contract updates on Sui, allowing you to make internal state changes or add/remove child objects in dynamic fields.
Let's take an example called Tails, which has two features—key and store. The key defines it as an ownable object, like an NFT appearing in your wallet. The store feature allows for free transfer and wrapping. The Tail Badge at the bottom is an accessory that can be added or removed based on certain conditions.
Through dynamic fields, we can achieve the behavior of "wearing badges." The badge becomes a child object that can be stored within the Tail.
Just one line of code is needed to create dynamic properties for NFTs. These dynamic NFTs and composability will take us to a different level of modern on-chain dApps. Validators can know where to find data through on-chain storage without the need for user input.
Kiosk Standard
Why can't blockchain bring much disruptive change?
Digital assets must encode rules, and if these rules cannot be executed by smart contracts, they cannot achieve decentralization because they will rely on central entities to comply with the rules. NFTs should encode rules such as royalties for secondary sales, copyright verification, and signing.
EVM chains and Solana cannot simulate assets that evolve over their lifecycle, store metadata on-chain, and execute rules. Existing frameworks are sufficient to simulate simple and standard assets, but they are not enough for disruptive industry transformation.
Just last year, there was a serious discussion about royalties on Solana. Many people expressed their demands: artists need strong incentives to migrate to Web3. Without adjusting the NFT standards, the market, tools, and artists will lose the incentives built here.
Sui has implemented an NFT standard called Kiosk to solve this problem. As a creator, SuiKiosk supports strict enforcement of transfer policies and related rules to protect assets and enforce property rights. Sui Kiosk empowers creators to have better control over their work, allowing them and owners to have mastery over the usage of their creations.
This means that digital assets on Sui allow rules to be encoded for execution by smart contracts, creating an excellent creative environment for artists and creators.
Composable NFTs
Composable NFTs accurately depict consumer needs. These composable parts serve as behavioral indicators, allowing protocols to fully utilize personalized loyalty systems without collecting massive amounts of data.
The protocol will be able to discard overly simplistic membership levels such as bronze, silver, gold, and provide a truly personalized loyalty system that reflects consumer uniqueness.
The new solution is composable NFTs that dynamically evolve based on user interactions. This evolution can be triggered by off-chain data (weather, location, etc.) and on-chain data (transactions with specific protocols). Each NFT reflects your status in appearance. Previously inactive users without motivation can now see the impact of their activity immediately. Highly active users continue to see rewards that reflect and unlock uniqueness and privileges.
Unlock Unique Rewards with NFT Features
The popularity of NFTs is due to the fact that users can acquire different features, providing them with a sense of rarity and uniqueness. By replacing traditional bronze, silver, and gold levels, NFTs will evolve and add different features based on different types of user activities, thereby generating specific rewards tailored to each individual user.
A good example of Web 2.0 is the credit card rewards system. Many credit card companies now offer customized reward programs based on users' purchasing habits.
For example, Alice often shops at a shopping center. The reward program she chooses is the shopping program that collaborates with the shopping center. The more she purchases at the shopping center, the more points she accumulates, which she can immediately redeem for discounts or cash rebates. On the other hand, Bob frequently travels and uses the same credit card to purchase airline tickets. The reward program he chooses is the travel program that collaborates with the airline. The more he purchases from the airline, the more points he accumulates, which he can exchange for seat upgrades or mileage enhancements.
Foodies who enjoy using credit cards at restaurants can get dining rewards, while movie enthusiasts who frequently purchase movie tickets can get cinema rewards. Alice and Bob have the freedom to switch between the reward programs they choose, providing a personalized and customized incentive system.
NFTs with composability can achieve frictionless interaction in the world of Web3. Imagine that if Bob trades game assets on a DeFi protocol, his avatar will add a sword feature, and if Bob makes more trades, the style of the sword will change to display a higher status. The sword feature here represents unique in-game fee discounts in the GameFi project collaborating with the DeFi protocol. For Alice, her avatar will add a gold chain feature because she often provides liquidity by staking project tokens on the DeFi protocol. The gold chain feature represents unique additional earning opportunities in the project collaborating with the DeFi protocol.
The key here is that there is no need to use a single state flag, and each user's state will be reflected through a unique set of characteristics. Therefore, even if Alice and Bob have the same transaction amount, the states they represent are completely different. What links them together is the rarity associated with the characteristics. Not everyone is interested in the same rewards, and the protocol can provide different rewards to users through the development of various cooperative relationships, with each reward being accessed and unlocked through the evolution of composable NFT features.
What is the relationship between DeFi and NFT?
Composable NFTs can interact with each other and operate like LEGO bricks. They create a whole new world of interoperability between different types of applications on the blockchain. A better analogy is that composability plays a role for enterprises similar to what open-source does for software development. This creates a new financial infrastructure that allows blockchain to become more accessible as new use cases emerge and Web3 becomes more widespread.
The aforementioned characteristics make Sui a superchain for NFTs and game assets. One core strategy of Sui is to focus on establishing an excellent environment for NFTs to drive user growth and achieve mass adoption.
This is especially important because DeFi protocols cannot achieve mass adoption solely through DeFi itself. As we have seen on other L1s, market momentum, total value locked, and liquidity are difficult to sustain in the long run with DeFi alone. Instead, liquidity should come from retail users creating, trading, and exchanging digital assets in the NFT community and GameFi projects.
The role of DeFi protocols is to serve as infrastructure that enables assets to be freely traded and utilized.
Sui can store metadata on the chain, making NFTs a stateful and dynamic on-chain application within Sui. This dynamic evolvability allows them to become a tool within the DeFi protocol ecosystem, providing more creativity for project exploration. Imagine building a fully on-chain DeFi user incentive system through composability with NFTs.
Use the Sui Kiosk standard to encourage creators, artists, and builders to create digital assets on-chain. As more on-chain assets circulate, there will be a financial demand for asset empowerment and efficiency improvement. Imagine generating income from native NFT/game asset through options and automated farming pools.
With the establishment of novel Sui features, we are optimistic about Sui's ability to truly disrupt the blockchain. Typus always stands at the forefront of implementing new features, excited about the high composability and cohesion of dynamic on-chain Sui assets and the DeFi ecosystem. Imagine guiding Web2 users to participate in experimental NFT collections through zk-login, sponsored transactions, coupons, dynamic attributes, and transaction cookies.
The future belongs to Sui.
References
https://twitter.com/kostascrypto/status/1668149010861899776
https://medium.com/mysten-labs/announcing-sui-tokenomics-9cb829086e30
https://www.youtube.com/watch?v=yRbajb10lIk
/testnet/build/sui-kiosk">https://docs.sui.io/testnet/build/sui-kioskSuinami Riders TG groupchat
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