Interpretation of dynamic NFT mechanisms and use cases, what advantages does dNFT have?

Written by: TinTinLand

Source: DeFi Dao

In 2022, NFTs began to become more ubiquitous, becoming the darling of capital and a new star in the on-chain world. A pair of socks from Uniswap sold for $160,000, Twitter founder's five words fetched $2.5 million, and crypto artist Beeple's digital work "First 5000 Days" sold for $69 million… The NFT market is bursting with growth potential.

The key segment market data report for NFTs in the second quarter of the same year showed significant growth in the metaverse and application NFTs in terms of total sales, sales volume, total profit, active wallets, and circulating asset volume. The NFT market is expected to achieve new growth with a compound annual growth rate of 10.7% from 2021 to 2030, with the market value projected to reach $125.07 billion by 2030. The growth of the sub-markets highlights the increasing demand for NFT technology applications beyond digital art, a trend that will also support the development and application of dynamic NFTs.

Forbes once defined NFTs as digital assets that represent objects in the real world, such as art, music, and games, bought and sold through encrypted digital assets. These NFTs are often encoded using the same underlying software as encrypted digital assets. Over the past 20 years, NFTs have also undergone a pandemic, continuously iterating their carrier forms and becoming mainstream in Web3 transactions.

Among the various products circulating in the NFT market, the hot Bored Ape Yacht Club, the FIFA+ Genesis Drop created for the World Cup, and the TME digital collectibles launched by internet giant Tencent… These treasures cherished by NFT enthusiasts are all "static" forms of digital creations.

However, after experiencing a wave of PFP projects in 2022, everyone was looking forward to fresh blood being injected into the NFT field to dispel the shadows of the crypto winter and create more "vivid and dynamic" new products. Thus, dynamic NFTs emerged as a new hotspot with high expectations. Today, we will explore the origins and development of dynamic NFTs, and gain a deeper understanding of this Web3 "darling" by comparing static NFTs with dynamic NFTs.

From Static NFTs to Dynamic NFTs

When we first hear about static NFTs, we often find ourselves confused. What is a static NFT?

In fact, most of the NFTs we encounter are "static NFTs." Static NFTs are non-fungible tokens that cannot be changed or modified once minted. Once generated, they cannot be altered on-chain because their metadata (core attributes) is defined and permanently immutable at the time of coding. This characteristic is also very suitable for digital art works such as videos, images, GIFs, and 3D models.

Currently, static NFTs are mostly applied in art projects, blockchain games, music photography, sports competitions, and other fields. The advantages of static NFTs mainly lie in supporting original art design; providing users with accurate and stable ownership; enhancing the future income potential of creators; ensuring that works are unchangeable and easier to verify; requiring lower storage and bandwidth, and adapting to more complex operating environments.

However, at the same time, static NFTs also have shortcomings:

• Having fixed metadata limits the potential use cases of the product, including the use of real-world assets.
• It is difficult to provide value beyond proof of authenticity and uniqueness; the value proposition is limited.
• According to OpenSea data, currently over 80% of NFT works in the market are suspected of false plagiarism.

These issues exposed in static NFT products and the market are becoming the targets for dynamic NFTs to solve.

Comparative Analysis: The Superiority of Dynamic NFTs

Building on the development of static NFTs, dynamic NFTs make adjustments based on inherent flaws such as immutability, lack of value propositions, and the wave of false plagiarism, excelling in aspects like modification and updates, flexible scheduling, and responsive interaction. We can glimpse the differences and advantages of both through the comparative analysis in the following image, and then delve deeper into what dynamic NFTs are.

Data Source: Zeeve.io

Dynamic NFT Mechanism and Use Cases

Dynamic NFTs (Dynamic NFT, abbreviated as dNFT) can be represented by a formula: dNFT = NFT + Oracle.

Overall, the execution process of dynamic NFTs is as follows:

• Data is continuously updated through oracles, creating a dynamic NFT product mechanism that changes over time.
• Metadata can change (by using smart contracts to build and program changes) to adapt to external data and events.
• dNFT metadata changes triggered under certain conditions can bridge the on-chain and off-chain worlds.
• Off-chain data is added to the blockchain for analysis by smart contracts.
• Oracles provide off-chain data and computing services to drive dNFT updates.
• Ultimately, this establishes automation, decentralization, and participation in the dNFT process.

The common execution process of dynamic NFT products is as follows:

• Individuals/programs request the URI of the NFT digital asset from the smart contract.
• The on-chain smart contract receives and processes the request.
• The smart contract calls on-chain data and processes the results.
• The smart contract calls off-chain data from the oracle and processes the results.

The emergence of dNFT has disrupted the technical concept of static NFTs and created more imaginative space for NFT products. As game props that change as players level up and defeat monsters, or as sports game passes that participate in competitive events… Real-world use cases for dynamic NFTs are within reach.

Achieving Artistic Co-Creation

dNFT can achieve external data from monitoring sources in the real world. In artistic creations related to minting, astronomy, time, etc., the material for the works is transmitted via the internet for co-creation and aggregation, which is then autonomously selected by the artist for creation. These co-created dynamic art pieces may originate from the creator themselves or from intermediaries/platforms, such as Artist Mari Inks Arts & Organic Growth: Crystal Reef Project. This is a generative art project composed of 10,301 crystals. Gradually, this crystal project became a shared artwork, culminating in a physical sculpture.

Changing the Gaming Experience

dNFT allows for progress-based modifications and uniquely designed games, providing blockchain games with an experience comparable to other popular mobile games and esports. Metadata can be flexibly set based on external data such as weather, time, and location, including adapting to real-time sports and esports match results. Elements that originally belonged to offline experiences, such as enhancing assist skills in competitions, fans celebrating competitive achievements, and recording gift unlock benefits, are "replicated" into dNFTs, breathing new life into online esports and sports projects.

Dynamic Brand Marketing

In the past, brand NFT projects were built from scratch to create a brand new series of NFT works, often done by brands alone, which was very time-consuming and labor-intensive. Now, "big sponsors" like Metaverse Zepeto can receive resource support from major brands like GUCCI from start to finish, broadening commercial links and enhancing product value. This is closely related to the utility of dNFT oracles, which aggregate on-chain and off-chain data resources to design dynamic marketing plans that maximize benefits for brand owners.

Precise Traffic Targeting

Applying the dNFT technical concept to browsers allows for measuring user engagement with content through view counts or timers, thereby generating traffic proof for websites. It can also embed Google Analytics to allow for open-source tracking of content engagement and popularity, facilitating query subscriptions for profit. These methods become "monitors" for browser applications, helping enterprise platforms and project parties accurately target user pools, achieve precise customer acquisition, and targeted dissemination, aiming to become a "killer application" for dynamic NFTs.

In addition to the main use cases mentioned above, dynamic NFTs are also active in areas such as event ticketing, education and training, and exhibition news. Projects like Sol Soldiers, VenVuu, Liquid Earth, and Unstoppable Domains are integrating forms like advertising + real estate, advertising + personal identity, and art + advertising to truly make NFTs "come alive"!

Looking Ahead to the Future of Dynamic NFTs

Dynamic NFTs certainly have their irreplaceable advantages, but there are still potential risks that developers and project parties need to think carefully about and actively explore.

For cross-chain compatibility with high-performance requirements bridging on-chain and off-chain, NFTs face security risks related to capital gains tax that are not included in the tax system. The operation of oracles cannot be decentralized, leading to more corruption and hacking issues, while the auxiliary functions of platforms like Chainlink or Bond are still incomplete. These challenges are evolving into stumbling blocks for the development of dynamic NFTs and hindering the renewal of the NFT market, necessitating more perfect solutions.

In the future, dynamic NFTs should also provide more paths for free choice. Offering dynamic or static directional references for different types of NFTs, improving periodic modification and update functions, maximizing users' autonomy, and providing more innovative applications that facilitate life scenarios and yield actual benefits.