Tokens Owning Tokens: The Fascinating Story Behind Crypto Composables

Doug Crescenzi
Oct 30, 2018 · 5 min read

It has almost been a year now since CryptoKitties was released. The blockchain based virtual game hit the Ethereum mainnet and took the crypto community by storm in late November 2017.

Its popularity grew rapidly after launch and caused an all-time high in transactions. The massive influx in transactions congested the network, slowed down processing times, and raised the costs of gas to the highest levels we’ve seen yet in Ethereum’s history.

In the midst of all of the excitement, a team of two engineers based in Syracuse, NY saw an opportunity to innovate.

KittyHats, dApps as platforms, and tokens owning tokens

Dan Viau and Jordan Messina were involved in the crypto space for some time before CryptoKitties hit the scene. They operated their own Ethereum mine and were beginning to do a bit of smart contract development work as well.

When CryptoKitties was released a lightbulb went off.

CryptoKitties was different than anything anyone had seen before in the blockchain space. Fungible ERC-20 tokens and ICOs were still front and center and the idea of unique, non-fungible tokens (NFTs) or crypto-collectibles, like CryptoKitties, hadn’t really entered the conversation, yet.

Dan and Jordan realized very early that distributed applications (dApps) running on the Ethereum blockchain could be used as platforms. That’s when they decided to build their very own token, KittyHats.

KittyHats are ERC-20 accessory tokens stored on the blockchain that CryptoKitty owners can purchase for their cats.

The idea that tokens could own other tokens in this way and that dApps could be used as platforms was a profound and novel discovery at the time. Dan and Jordan made this realization even before the creators of CryptKitties themselves had thought of it.

At Token Summit earlier this year, Fred Wilson — one of the most successful venture capitalists of all time and crypto enthusiast — interviewed Dieter Shirley, one of the co-founders of CryptoKitties. Dieter acknowledged that before KittyHats, he’d never thought about the idea of dApps on the blockchain operating as platforms and praised Dan and Jordan for their work:

“Because of the nature of blockchain they [i.e., Dan and Jordan of KittyHats] could build an entire product on top of CryptoKitties that allowed them to sell tokens independent of us on their own website. Then a user, after purchasing a token, can assign that token to their cat. The user owns the cat, but the cat owns the hat.” — Dieter Shirley

ERC-998 Composable Non-Fungible Token Standard

In spring of 2018, Matt Lockyer, Nick Mudge, and Jordan Schalm released a draft of the ERC-998 Composable Non-Fungible Token Standard. They extended the concept of tokens owning tokens that Dan and Jordan introduced via KittyHats, and made it more useful.

The ERC-998 standard is an extension of the ERC-721 standard. It enables ERC-721 tokens to own other ERC-721 and ERC-20 tokens. It also extends ERC-20 and ERC-223 standards and enables ERC-20 and ERC-223 tokens to be owned by other ERC-721 tokens.

ERC-998 covers four different kinds of composable tokens:

  1. ERC998ERC721 top-down composable tokens that receive, hold and transfer ERC721 tokens
  2. ERC998ERC20 top-down composable tokens that receive, hold and transfer ERC20 tokens
  3. ERC998ERC721 bottom-up composable tokens that attach themselves to other ERC721 tokens.
  4. ERC998ERC20 bottom-up composable tokens that attach themselves to ERC721 tokens.

As Matt, Nick, and Jordan explain in the the specification:

[T]op-down and bottom-up [composables] exist to handle different use cases. A regular ERC-721 token cannot own a top-down composable, but it can own a bottom-up composable. A bottom-up composable cannot own a regular ERC-721 but a top-down composable can own a regular ERC-721 token. Having multiple kinds of composables enable different token ownership possibilities.

This idea of composables has gained quite a bit of traction in recent months. A few weeks ago, Decentraland, currently the largest marketplace among dApps in the Ethereum space with a market cap of $66,107,418.92, started to use composables.

Decentraland and tokens owning tokens

Decentraland is an Ethereum-powered virtual reality platform. In Decentraland’s virtual world, users can purchase plots of land that they can later traverse, build upon, and monetize. It’s the first digital platform that’s completely owned by its users.

Earlier this month the Decentraland team introduced Land estates to their marketplace. Land estates make it possible for land owners in Decentraland to associate and combine two or more directly adjacent parcels of land. These parcels must be directly adjacent, and cannot be separated by a road, plaza, or any other parcel. By connecting land parcels into Estates, users can more easily manage their larger land holdings.

Map of Decentraland

When you look under the hood, estates are simply unique ERC-721 tokens that own other ERC-721 tokens in the form of land tokens. The use of estates have started to gain a lot of popularity in Decentraland.

Composables and the future of tokens owning tokens

The notion of composables and tokens owning tokens isn’t going away.

Composables introduce added value and functionality to existing dApp platforms and create new pathways to rich and exciting inter-operable experiences among dApps.

There are plenty of practical use cases for composables that address real world problems just as there are many fun and creative use cases that enhance games and storytelling.

We’ll continue to see more experimentation with composables in coming months as the standardization of the interfaces are formalized further.

We’re excited to see what’s next!

☞ To stay up to date with our work with smart contract development, follow us on Medium and Twitter.

Upstate Interactive

We're a women-owned business that helps B2B organizations turn great ideas into software.

Doug Crescenzi

Written by

We build smart contracts and distributed applications @ Upstate Interactive - Founder @ Hack Upstate

Upstate Interactive

We're a women-owned business that helps B2B organizations turn great ideas into software.

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