The Utility of ERC-4907 Rentable NFTs and Soulbound Tokens
The world of Crypto travels at such a fast pace that it is sometimes difficult to keep up, but NFTs are no different: we have already mentioned their use in the context of GameFi in a previous article, but now let’s go into more detail about its most recent implementations.
The new ERC-4907 protocol
Before the implementation of this protocol, one could still lend (and borrow) nfts by giving collateral or by entering into actual smart contracts: clearly, this was a less than straightforward process, implying a certain amount of trust between the contracting parties and exposing them to a wide variety of fanciful frauds: for the lender, the unavailability of an NFT rented and sold. For the borrower, the vanishing of the deposited collateral.
Owner or User
ERC-4907 adds a new feature to the NFT standard, specifying who is the owner and who is the user of the NFT and allowing the rent of the asset. The lender can use the NFT until the end of the borrowing period, automatically returning the NFT to its owner.
A significant addition to this protocol is the automatic “expiration” function that enforces the user’s temporal frame.
This handy feature makes NFTs rentable by design: lenders don’t have to manually withdraw user rights anymore, avoiding a boring-chain of tasks.
ERC-4907 can be easily achieved by adding a few lines of code. The widespread adoption of this model as a standard for NFTs will accelerate the innovation and the growth of the NFT ecosystem.
Axie
Some people link the collapse of Axie Infinity to this new lending protocol: in my opinion, no, and I will try to briefly explain why.
First of all, AXS (Axie’s main currency) peaked in November 2021, long before the introduction of the ERC lending protocol.
But the real news is that the scholarship program, the one that allowed the lending of Axies, existed well before the introduction of the protocol itself (April 2021). This implies that the scholarship mechanic of Axies works regardless of the presence or absence of an ERC implementation on the Ethereum blockchain.
Soulbound NFTs
Vitalik Buterin, an avid World of Warcraft player, borrowed the concept of “Soulbound Items” present inside the game to introduce the concept of non-transferable NFTs.
A Soulbound Item, once collected, cannot be transferred or sold to another player, and collecting them often requires completing complex quests or killing powerful monsters.
The purpose is to reward a skillful player, as these are items that time and finances cannot give you.
Of course, the mechanism is imperfect: someone could either buy the player directly or participate in the quest with a team of mercenaries who will allow him to collect the item.
The “Panama hat” guy from Indiana Jones and the last crusade
At this point it is impossible for us not to end up talking about Soulbound NFTs.
“POAP”-proof of attendance protocol- is an excellent example of what it could mean to extend the concept of soulbond to the world of NFTs: every person who attends to an event receives one of these, as if it were a digital certificate: however, this does not prevent these POAPs from being sold as well in particular cases, such as the adidas one that allowed priority access to the “merchandise sale.”
To prevent transferability, one could, for example, check that the NFT does not change address, but as much as the argument may be spinning at a theoretical level, I see various obstacles in practice: whether the nuclear option of allowing the first owner to revoke the NFT is the real solution? To posterity the arduous sentence.
NFT vault
Let’s say someone spent most of this lockdown amassing NFTs: how to secure them?
• in a hardware wallet, inside a safe that is fireproof and waterproof. Nice but expensive: it is good to remember that NFTs will never be truly offline, but simply the information needed to access them will be offline.
• in a software portfolio such as metamask: low cost, but high risk of experiencing a range of hacks and scams.
• by adopting a solution with multiple signatures such as “Gnosis Safe” with additional confirmation for every NFT given away
• on the cloud via an “Interplanetary File System,” which is an open source project that breaks up your NFTs through a peer-to-peer protocol
ERC-4907 innovations recap
• time frame expiration: The loan is automatically revoked at the end of the rental term
• increased liquidity: more people, including those who cannot afford or simply do not want to purchase virtual assets, will choose to rent NFTs to access their benefits
• roles for NFTs: With dual roles of owner and user, it is much easier to manage what the parties can and cannot do
• fewer barriers: Renting an ERC-4907 NFT does not need OCs or any guarantees, as leasers are allowed to use the NFT but cannot transfer it or change its ownership, which is automatically revoked when it expires. This creates more opportunities for users to rent NFTs and use them
• easiness: Easy to implement and ensures compatibility with previous versions.
- integration: The owner of an NFT can rent it and at the same time transfer it to a mortgage platform
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