ABCDE Capital: 9 Directions for the Future of NFTs from 19 EIPs

Source: ABCDE Capital

Compiled by: Shiwen, Odaily Planet Daily

ERC-721 was created in January 2018, at a time when some NFT experiments had already emerged on-chain. However, no one could have predicted that it would lead to the birth of the NFT ecosystem and unleash the potential of NFT applications. PFP and GameFi NFTs became the main stage of Web3 in 2021 and 2022, and we are even more excited to anticipate the next phase of NFT growth.

An increasing number of innovations and standardization measures are further driving NFTs. In this article, we will analyze the latest EIPs (Ethereum Improvement Proposals) and distill 9 future directions for NFTs.

1. Permissioned NFTs

Previously, we followed a model for NFTs where each NFT had an owner field in its metadata, representing a single owner. However, a single-owner configuration can lead to a lack of flexibility when using NFTs. What if the owner wants to rent out the utility of the NFT? What if the issuer wants to limit the total number of NFTs but still allow broad access to their services? This leads us to permissioned NFTs.

By enabling permissions, we refer to a generalized method of permissions on NFTs. An NFT can have one owner, but it can also have fields specifically for potential rights holders, loyalty grantors, and so on. We can break down the utility of NFTs into specific parts, allowing different players to derive maximum benefit from them.

EIP-4400 introduces the consumer role for NFTs, allowing non-owners to enjoy the benefits of a given NFT instance by creating permissions for them. The primary use case comes from the metaverse: landowners can authorize consumers to use their land. It implies the potential to leverage additional roles to enable beneficiary-user relationships in NFT rental markets and NFT yield farms.

EIP-4907 proposes the concept of rent-able NFTs. It includes user fields and expiration fields in the ERC-721 contract to achieve a fine-grained owner-beneficiary relationship within a single NFT. With this improvement, one can easily rent out an NFT or authorize others to use the IP. Before this EIP, NFT holders had to transfer the NFT to enable rentals and carefully calculate the required collateral to protect their ultimate ownership. This model is not the safest and can lead to the NFT rental market behaving like an options market: if the value of the NFT rises sharply, the lender can choose to forfeit collateral and benefit from the NFT's appreciation.

EIP-5023 creates an interface for creating NFTs shared by multiple owners, known as shareable NFTs. The current reference implementation emits a sharing event to mint new tokens based on a given token ID and transfer them to the recipient. While the implementation is not perfect, it points to a future where NFT ownership can be refined to each specific function or functional module. Owners can share the same or different parts of the rights granted by the NFT. Additionally, it can address the current supply-demand contradiction: NFTs need scarcity and limited supply to stabilize market prices, yet NFTs should be shared, making them accessible to everyone. Through shareable NFTs, applications like music NFTs may achieve the goal of retaining price appreciation while providing access to all fans through sharing features.

In short, we look forward to the application of permissioned NFTs in the rental market, the emergence of variants of NFTFi, and the distribution of products to fans through NFTs.

2. Relationship-enabled NFTs

In addition to innovating in the area of multiple owners and users of NFTs, we urgently need to implement the functionality of bundling multiple NFTs together under the same owner. In gaming, the value or output of a set of assets can far exceed that of a single item. In the metaverse, people may want to teleport between multiverses and still be able to access their assets in a compatible format. If NFTs can be combined across ERC-721 contracts, applications, and chains, there will be a huge market to release value balance through NFTFi.

EIP-5606 proposes the concept of multiverse NFTs to achieve a universal representation of multiple related NFTs across different platforms. As a single asset, it allows users to bundle and unbundle any NFTs to support collection needs and utility. It can define the relationships between assets and their associative nature to achieve better cross-chain and cross-metaverse interoperability.

EIP-6059 further extends bundled NFTs into nestable NFTs controlled by a parent, adding a layer of relationships within bundled NFTs. It provides better clarity for bundling by specifying the EOA controlling the parent NFT and the tree structure of all child NFTs. It can support bundling, standardized collections, on-chain memberships, and delegation to enhance the NFT collection experience and NFT utility potential.

EIP-6150 introduces the concept of hierarchical NFTs, similar to a file system in an operating system. It can more accurately layer and grade the NFT hierarchy. Furthermore, it also proposes standardizing permission settings for each layer of the hierarchy to achieve better NFT permission operations.

EIP-6220 creates composable NFTs with fixed and customizable slots, allowing NFTs to be directly combined into a utility or tradable asset. It can support game applications to equip characters in a standardized way or any DApps to use composable NFTs to create new user experiences or assets.

3. NFTs as Vesting Tools

Tokens have long been a medium for investors and early supporters to gain shares and returns from projects. However, there has been more short-term speculation rather than healthy growth supporting the ecosystem. For projects, it is challenging to establish a fair share distribution method using crypto-native approaches, or it is generally difficult for the average person to easily create stepwise ownership claims in ERC-721. Vesting NFTs can be a solution, with great potential to extend to various applications, transferring traditional financing onto the blockchain.

EIP-5725 creates a transferable unlockable NFT interface that can release underlying tokens over a certain period. This means that NFTs serve as carriers for unlocking tokens or can unlock according to a predetermined curve to reach their ultimate utility.

EIP-5753 proposes a lockable NFT extension to disable token transfers during the lock period. This can enable safer NFT collateralization in DeFi lending or yield farming. Holders can choose to lock the NFT under their account instead of depositing it into an external contract, achieving the same result with less protocol risk and reducing the chance of losing the NFT.

We look forward to more financial structures being encompassed by NFTs, enriching the entire blockchain market.

4. NFTs as Utility Tools

In addition to serving as viable granting tools, NFTs are also used as utility tools supporting gaming applications and club memberships. What is the potential of NFT utility value? We anticipate unlimited utility value, inheriting user behaviors and characteristics from Web2. New EIPs are proposed to support the utility value of NFTs.

EIP-5050 suggests that NFTs should define how they interact through action messages and discovery protocols. This can enable creators to continuously interact with holders or connect games to their NFT characters. Moreover, it implies that NFTs could become connection nodes for users to interact with each other and use NFTs as phones or social media. Token contracts will be discoverable and usable by applications, allowing games and other applications to have a layer of interaction with NFTs.

EIP-5643 proposes subscription NFTs to embed expiration and recurring payment plans for valid subscriptions. This will provide NFT issuers with a stable revenue stream rather than relying entirely on fluctuating loyalty fees in transactions. This means that NFT creators can focus on developing sustainable business models rather than pushing NFTs and triggering FOMO to generate income. Additionally, it will help users easily manage their subscriptions and potentially gain capital appreciation in NFTs by supporting promising projects early on.

5. NFTs as Identity Tokens

Soulbound tokens and naming services have long been popular ways to represent on-chain identity. They both rely on NFTs to carry identity and represent unique characteristics and properties of identity. EIPs have been increasing support for SBT and its ecosystem, while we expect the zkID technology stack, which protects on-chain privacy identity, to be ready soon and standardized in the EIP pipeline.

SBT was initially proposed in EIP-4671 to create non-transferable tokens as proof of holding and achievements. It was developed as a certificate issued by an institution that cannot be revoked or transferred. However, EIP-4671 failed to become a standard on Ethereum and was shelved. It did not diminish enthusiasm for SBT but rather initiated more direct development and EIPs in the SBT space.

EIP-5192 proposes a minimal interface for soulbound NFTs to standardize SBT implementation and transfer functionality in wallets. It presents the simplest path to a standardized SBT specification interface. This is the current standard for SBT on ERC. Through standardization, we will see more developers using SBT and the creation of more SBT-oriented applications and utilities.

6. NFTs for Richer Content

Currently, NFTs need to rely on external storage to save PFPs or other media, which can lead to interoperability issues when displaying and using NFTs across various metaverses and markets, as linked files may exist in different formats or be unavailable. We believe that in the future, NFTs themselves will be able to accommodate richer content for use across any intermediary platform and multiverse.

EIP-4955 is the first step in improving NFTs with richer content: vendor metadata extension. It simply adds a new field to NFT metadata, allowing vendors to freely store application-specific JSON data, which NFT markets and metaverses can leverage by presenting custom metadata. For example, the metadata could include a custom 3D representation of the NFT or other attributes.

EIP-5489 proposes a hyperlink extension, adding clickable functionality to all NFTs to guide users to specified web pages. If NFTs become the primary media and information carriers in the Web3 world, they need an alternative way to attach more content than what is on-chain. The hyperlink standard is an important step toward achieving any type of information dissemination.

EIP-5773 specifies an interface for multi-asset tokens with contextually relevant asset types. Each NFT can be displayed in the appropriate format based on access patterns, such as displaying PDF files in e-reader format or displaying 3D model assets in game format. Directly embedding various assets from different contexts into NFTs can create a smoother and more fulfilling user experience.

Richer content can significantly enhance the NFT experience. It creates a larger surface area for user experience with NFTs and can lead to more innovation and use cases.

7. NFTs for Physical Assets

A crucial step in achieving widespread blockchain adoption is connecting the real world with the blockchain world. Digi-physical is a commonly used term to describe the combination of digital and physical experiences with assets. NFTs are a promising medium for the relationship between digital-physical products and services.

EIP-4519 proposes an interface for representing physical assets through NFTs, with the capability to generate or recover accounts. It links NFTs to unique physical assets to enable applications related to physical sensors and assets. This specification is a strong indication of the potential for fully integrating physical assets into blockchain crypto schemes, although more work is needed to achieve complete physical layer integration with blockchain.

EIP-5700 can create useful NFT bundles of physical assets through token binding and tracking to unique assets. For example, it could be clothing embedded with microchips or digitally registered real estate assets. The standard also supports the composability of NFTs by granting ERC-721 and ERC-1155 contracts the ability to bind, thus supporting unique or non-unique physical assets.

8. NFTFi with Advanced Metrics

As aspects such as permissions, relationships, lock periods, and utility values continue to increase in NFTs, the valuation and trading of NFTs require more refined mechanisms to reflect the market's different assessments of the value of various components of NFTs. The ongoing advancement and enrichment of EIPs demonstrate the evolution of NFTFi, with more layers of detail and refined user experiences expected in the future, while also facing the daunting task of ensuring a smooth user experience.

We see that future NFTs need to facilitate the emergence of better markets, trading options, and yield farming algorithms.

9. NFTs as EOAs (Externally Owned Accounts)

Finally, NFTs can become entities in their own right. They can serve as the holder's wallet, identity, or typical EOA. This can limit an individual's traceability on-chain, establish the history and reputation of NFTs, and enable more NFT ownership structures.

EIP-6066 standardizes the signature verification method for NFTs to easily verify signatures of ERC-721 and ERC-1155 contracts. It essentially extends the utility of NFTs from an asset to own into an EOA with interaction, payment, and transaction approval capabilities. NFTs can become managers or roles in the Web3 world, enriching the current ownership experience.

We can imagine that as NFTs become sovereign entities on-chain, anyone can freely establish the intellectual property of NFTs. Furthermore, using relationship or permission-enabled EIP schemes, users can create hierarchical signatures or interact with NFT bundles in entirely new ways.