In the current crypto world, more and more people are using NFTs as a form of on-chain identity. However, the current ERC-721 tokens (NFTs) do not have proxy functionality or ownership of other on-chain assets, which is out of sync with the use cases of real-world non-fungible assets. Therefore, the ERC-6551 proposal emerged. It solves this problem by granting full Ethereum account functionality to each NFT, while maintaining compatibility with existing ERC-721 contracts.
What is ERC-6551?
The ERC-6551 proposal is a brand new token standard that greatly enhances the functionality of ERC-721 (i.e. NFTs). It was released on the Ethereum mainnet on May 7, 2023. Through ERC-6551, one or more smart contract wallets can be created for NFTs, making them more composable, dynamic, and interactive. In short, ERC-6551 turns NFTs themselves into wallets with addresses.
These wallets are called “Token Bound Accounts” (TBA) (TBA control is delegated to NFT holders, i.e. NFT holders can use TBA to initiate on-chain operations). Using TBA, you can store any encrypted assets in the NFTs you own. For example, previously purchased BAYC needed to be placed in Metamusk; through ERC-6551, you can create a TBA to store BAYC. Additionally, not only can ETH be stored in the TBA of BAYC, but also other NFTs. As a “wallet”, TBA can also be used for interaction in dApps. It is worth noting that a single NFT can also have multiple TBA accounts through ERC-6551. In this sense, an NFT can now contain multiple wallets and so on.
The system introduced by ERC-6551 mainly consists of two parts: an unlicensed registry for deploying token-bound accounts and a standard interface for interacting with these accounts. The following figure illustrates the relationship between ERC-721 tokens, ERC-721 token owners, Token Bound Accounts (TBA), and the registry:
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Changes brought by ERC-6551
Through the ERC-6551 standard, users can do anything with NFTs that they can do with a regular Ethereum wallet. Users can bundle your relevant assets (NFTs, tokens, identity characteristics, etc.) into an NFT, making it easier to manage and transfer your assets across different platforms. If an NFT is sold/transferred, all of the assets within it will also be transferred. TBA solves the problem that NFTs currently cannot provide detailed information such as source/origin/history of transactions, which buyers usually cannot directly access except for some simple information displayed in some NFT markets. NFT markets and lending protocols can use TBA to determine user reputation, simplify some processes, and so on.
TBA brings a new paradigm for decentralized identity. Before TBA, Vitalik proposed SBT (Soul Binding Token). SBT confirmed identity through wallet assets, while TBA does not require identity verification. Instead of binding NFT to wallets, TBA binds wallets to NFT. This attribute transforms NFT from a static asset into a fluid asset management system. This means that one of your NFTs might become your on-chain identity, and it can prove your credibility through successful TBA transaction records. TBA’s NFT can interact directly with dApps. In GameFi and SocialFi, users can identify asset identities at a glance through NFT, greatly reducing confirmation costs. It can be widely used in airdrops, loyalty programs, and in-game rewards.
SocialFi’s new breakthrough
The continuous development of NFTs has allowed SocialFi to truly emerge. Web3’s social interaction is inevitable, and many teams have been exploring how to integrate Web3 social interaction into the decentralized economic system. The innovation of ERC-6551 will directly provide better support for the SocialFi track.
Let’s take a look at the characteristics of SocialFi. The core narrative of SocialFi is Web3 social interaction, which has three decisive characteristics compared to Web2:
First, it is platform-agnostic. Without a platform, there is no third party that owns the content created by users. Instead, creators are also owners. By extension, Web3 social networks are also resistant to censorship, which means that social relationships cannot be deleted or restricted by platforms.
Second, Web3 social data is portable. However, Web3 has an advantage: it uses wallets, which can establish a direct relationship between users and creators, so creators do not have to constantly rebuild fan groups; even if personal social protocols are closed, wallets still exist. The ultimate result is that neither fans nor creators are bound to a particular platform. Compared to building an audience on Web2 each time, then constantly rebuilding new audiences because of the platform, Web3 social interaction does not have this problem.
Third, Web3 social interaction has strong composability. SocialFi protocol obtains value and utility through applications built on decentralized social primitives. The early atmosphere of Web2 and today’s Web3 are similar: the platform is not the subject, but the creators and other users are. However, over time, Web2 platforms usually develop from cooperating with builders to competing with them. Web3 networks are more conducive to composition because they have always been optimized for cooperation, while on this basis, tokens serve as decentralized incentives.
TBA provides a fast and low-cost verification mechanism that greatly solves the trust mechanism and transaction costs of Web3. SocialFi can more easily convert Web2 users into the Web3 world. In this way, TBA enables project creators to achieve new use cases that they have always wanted to add but have not yet found a simple way to do so:
Equipping digital clothing and items (RTFKT — CloneX, Doodles)
ERC-20 token earning/airdrop model (BAYC, Cool Cats, SupDucks)
POAP or badge obtained through participation (Azuki, FWB, Moonbirds)
Trade the entire collection as a unit (OpenSea batch transfer)
The ability for NFTs to serve as on-chain identities that are layered on social network models (CryptoPunks, Nouns)
These use cases can all become new support for SocialFi to break through the circle.
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