In addition to ERC-721 and ERC-1155, what new standards are there to reshape the NFT creation space?

Original title: Beyond 721 & 1155: Revisiting The NFT Design Space

Author: Natalie Mullins

Compilation of the original text: bayemon.eth, ChainCatcher

For the NFT market in a bull market, people often look at the trend of the Google search term “NFT” as an indicator of adoption and popularity. Ironically, however, when a word disappears from the language entirely, it can be a real sign of mass adoption. When the three letters “NFT” fade out of the search box, it means that most people in the market have a clear understanding of the concept of NFT, and people will no longer need to use the term “NFT”, because “NFT” will already be in People’s after-dinner chats are refined into specific projects.

Source: The Block

However, in a bear market, people will focus on the “utility” of NFT. Many have complained that in the six years since ERC-721 was first proposed, the NFT market has remained devoid of non-speculative use cases and applications.

Although these different viewpoints are very important, the cycle of bulls and bears before and the continuous debate between viewpoints sometimes blind the more important issues in the development of NFT. This article aims to re-examine the basic principles of NFT practicability, and mainly introduce the innovative standards that have emerged in recent years for the expansion of NFT practicability and enriched user experience.

Jump out of the market and build a big picture

Just as governments can freeze your bank accounts, seize funds, and prevent you from interacting with the (legal) banking system, centralized content platforms and data monopolies have equal power in the digital realm. Not only does this have dire implications for the censorship resistance of the web, but it also presents even greater challenges, such as highly anti-competitive market dynamics that prevent full-scale innovation, and the need for valuable AI training data. Against the backdrop of increased demand, new concerns about data privacy and commercialization.

So why is the utility of NFTs mostly focused on proof of provenance for (expensive) art and collectibles?

Usually, after a new technology emerges, because people need more time to digest, understand, or brainstorm more possibilities of this technology, the application cases with the clearest and simplest structure often start first. Another main reason why the practicality and application of NFT has been slow to develop is that the scalability challenges of the blockchain in the past few years have limited the practicality of NFT. For example, the latest ERC-6551 standard allows any ERC-721 token to be bound to a smart contract account, but additional functions often come with additional costs. As long as creating, distributing, and participating in NFT projects remains costly for most people, participating in low-cost or “non-speculative” NFT investments violates their standards as “rational economic persons.”

However, this is changing as the industry’s massive investments in scalability are finally starting to pay off. Layer 2 solutions on Ethereum are thriving, and Solana is also developing vigorously on its unique architecture and leadership in token standard innovation.

Extending NFT Utility: A Novel Token Standard

(Note: these criteria are not necessarily mutually exclusive)

NFT is App: xNFT

xNFT, also known as “executable” NFT, is a Solana-native NFT standard that uses Backpack wallet 1 as the operating system and key management layer to interact with xNFT-based applications. xNFTs can be used to build collectibles (such as the PFP of the Mad Lads series) or applications, but since they are also “symbols of execution rights” for certain codes, developers can build items with a richer experience through xNFTs.

Staking Mad Labs xNFT will generate reward points anchored to NFT

xNFT app store

Most uniquely, xNFTs are similar to using on-chain software licenses, allowing developers to easily use the open source code structure and control the number of installs of their xNFT applications, installer identity, installation fees, and track upgrades and user interactions.

The Backpack team also recently introduced a new feature called “Soul Abstraction”, which not only provides xNFT with NFT hosting-like functionality, but also allows developers to freely build additional features or contribute to xNFT without permission or technical support from the Backpack team. And its holders airdrop benefits.

NFT Economies of Scale: Compressed NFTs (cNFTs)

As the name suggests, Compressed NFTs is a new paradigm of NFTs implemented by state compression, developed by engineers at Solana Labs, Solana Foundation, and Metaplex. The idea stems from a community discussion about what is needed to bring data from apps like Instagram on-chain, with the aim of getting “the marginal storage cost per unit as close to zero as possible.”

Simply put, state compression works by storing the Merkle root of the NFT data on-chain, while keeping the actual data off-chain. Even if off-chain data is tampered with, the Merkle root will be different from the data stored on-chain, thereby maintaining security. The correctness of NFT data is verified through Metaplex’s Bubblegum contract.

Is it really necessary to reduce the cost by a factor of 1000? In fact, putting this issue on the agenda will need to wait until NFTs become truly ubiquitous “small pictures”. “Everything can be token economics” has become a popular trend, and what cNFT does is to chain Internet data and convert it into “durable sovereign digital objects”, thus becoming an economically viable option and capable of large-scale accomplish.

This is one of the main reasons why it is so important to continue to reduce minting and distribution costs in terms of scalability. Layer 2 solutions like Arbitrum and Optimism have made impressive progress in reducing transaction costs, compressing transaction costs down by a factor of 10 relative to Layer 1.

These improvements are by no means trivial, and in the case of Instagram, even a $0.10-$0.50 fee is prohibitively expensive for many use cases. In fact, it takes a more expensive cost to solve this seemingly “minimal” cost of use. It’s worth noting that it’s still too early for Layer 2 to address these, but that doesn’t stop us from highlighting some early steps in Layer 2 NFT innovation below.

Example of cNFTs being used to improve user experience:

DRiP

DRiP was created by the team that previously created Solana Spaces, aiming to build an encryption-native, creator-centric content distribution platform. By subscribing to their main channel Showcase, users will receive free airdrops from the DRiP team every Wednesday, and they can also subscribe to more creator channels including Degen Poet, Degenerate Ape Academy, Vault Music, Floor, etc. To obtain various digital collections airdropped by creators in cNFT.

cNFTs

DRiP

DRiP Creator Channel

Serving content at this scale to hundreds of thousands of subscribers would result in significantly higher costs without cNFTs. It is important to know that the second season of DRiP has distributed more than two million NFTs to subscribers, of which more than 500,000 have been distributed in the last few days alone.

Dialect

Web3 messaging platform Dialect has also minted hundreds of thousands of cNFTs for tradable emoji packs. Users can take advantage of Dialect’s smart message function to buy and sell assets directly within the message interface.

Helium

As an application migrating from its own Layer 1 network to Solana, Helium is now using cNFTs as proxies to on-chain its nearly 1 million unique physical hotspot devices. Hotspot operators can claim the NFT after logging into the wallet associated with the hotspot.

Metaplex

After Mailchimp accounts were shut down, NFT infrastructure provider Metaplex switched to using cNFTs to send invitations to its new Creator Studios. Metaplex is now working with Underdog Protocol on a cheaper, more crypto-native alternative.

NFT with “Super Power” - Dynamic NFT, Private NFT, NFT Escrow, NFT Fusion

Dynamic NFT

Being able to update metadata based on specific on-chain or off-chain events is a subtle but subversive superpower. Animated NFTs with this ability make more sense than their static counterparts in almost all cases. In addition, in order to make the deployment and management process more seamless and standardized, dynamic NFT also emphasizes the extremely high requirements for encrypted native databases and infrastructure.

Private NFT

One of the earliest examples of private NFTs dates back to Secret Network’s SNIP-721 standard, which Quentin Tarantino used in 2021 to release “Unleased Pulp Fiction Scene” as an NFT.

Other solutions also involve Lit Protocol access control and Arweave for permissioned access to encrypted metadata. For example, Solana-based music platform Vault Music 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 integration

Another Solana native standard, NFT Escrow is an extension of the Metaplex Token Metadata Contract. The standard allows any NFT to function as a wallet and hold its own tokens. It implements two different types of escrow accounts, Own Escrow (TOE) managed by NFT holders and Own Escrow (COE) managed by specific creators. The recent release of ERC-6551 actually marks the entry of this feature into today’s EVM ecosystem.

NFT fusion is an expansion solution for NFT custody functions, which enables NFTs to be bundled together to create new NFTs and change according to the assets it holds.

These two standards have laid a solid foundation for building an immersive experience of the game. After the introduction of these two solutions, gamers can freely experience token interaction and level improvement.

AIGC NFT: NFTs based on artificial intelligence output content as a trust and proof mechanism

EIP-7007 proposes an ERC-721 wrapper that includes functions for checking hints and proving the validity of combinations using zkML techniques. The metadata schema also provides a structure for storing information about the AIGC-NFT, such as hints, content, proof of ownership, etc. In fact, creators of machine learning models can publish their models and corresponding ZKP validators on Ethereum, and users can declare an input prompt, issue an inference task, and finally receive the output in the form of NFT. The sponsors of this EIP see this as a way to help commercialize small models.

NFT in the financial field: DeFi and RWA

While DeFi may seem like an unlikely place to find new NFT use cases, it turns out that many financial assets, especially derivatives, are non-homogeneous, (which is exactly what Uniswap uses the ERC-721 standard to define reasons for V3 LP positions). To that end, NFTs have many non-obvious use cases in DeFi:

Panoptic (Centralized Liquid Market Maker and NFT)

Panoptic is a crypto-native perpetual options protocol based on Uniswap V3 LP positions. Options have high capital efficiency issues due to the need to provide collateral, so in order to realize options with low mortgage rates, the team turned to NFT for a solution.

Panoptic essentially replaced Uniswap’s non-homogeneous LP position manager with a semi-homogeneous position manager, using the ERC-1155 interface instead of ERC-721. This enables them to combine multiple options into a single NFT to create “custom exposure positions,” making it easier to calculate collateral requirements for a group of interrelated options. This is therefore especially useful for multi-leg options with an overall risk-defining profile, where the overall risk of the option can be specifically assessed even though individual options in it could theoretically face unlimited losses.

Pantopic uses ERC-1155 tokenID to refer to options position information

Homebase（RWA）

Homebase is a platform that allows users to invest in tokenized residential real estate for as little as $100. To convert assets on the trading platform into NFTs, each token has its own unique metadata URI, where information about the asset is stored on the blockchain and updated regularly.

Although Homebase and other RWA/NFT financing platforms are more like “playing house” tricks today, they actually highlight the importance of financial infrastructure built specifically for NFT. Most assets and many financial positions are effectively non-homogeneous or semi-homogeneous. These examples also highlight the possibilities that can be achieved by bringing more financial metadata on-chain (more on this will be discussed later).

Infrastructure challenges

While the use cases explored above are exciting, the current severe fragmentation of NFT metadata, both for incentive mechanisms and data standards, remains a significant barrier to realizing the full potential of NFTs. Today, NFT exists on various Layer 1 chains and Rollup chains. Metadata storage location, whether it is compatible with EVM, storage methods, etc. are all concrete manifestations of metadata decentralization.

The point is, as NFTs become containers for more and more content, assets, and experiences, the need for a decentralized, Web3-based database to bring more composability and functionality to the metadata layer becomes more urgent . Ideally, such a database would free up as much data as possible “trapped in the centralized wall”, allowing it to be exchanged between entities at a more granular level.

A promising example of such a product is Tableland, a SQLite database solution built specifically for Web3 development. Tableland can be seen as an intermediate layer between Filecoin storage and EVM smart contract logic, allowing the database to be programmed directly from the smart contract. For example, a developer could allow certain cells and/or rows to be changed by the owner of a particular NFT or based on the outcome of certain on-chain events. While there is still work to be done in adapting to newer token standards and ecosystems, it cannot be denied that Tableland has found the right direction.

Dive Deeper: Check out Tableland’s curated list of database and metadata solutions here.

As artificial intelligence and the digital economy move to the forefront of human life, it will become increasingly difficult to thread the needle between extracting/controlling data and protecting digital property rights. NFT may be the best opportunity to break through the barriers between data control and protection of digital property rights.