What other new standards are reshaping the NFT creation space besides ERC-721 and ERC-1155?

Original Title: Beyond 721 \& 1155: Revisiting The NFT Design Space

Author: Natalie Mullins

Compiled by: bayemon.eth, ChainCatcher

In the NFT market during a bull market, people often focus on the trend of the Google search term "NFT," viewing it as an indicator of adoption and popularity. Ironically, the true signal of mass adoption may come when a term completely disappears from the language. When the three letters "NFT" fade from the search box, it means that the vast majority of people in the market have a clear understanding of the NFT concept, and there will be no need to use the term "NFT" anymore, as "NFT" will have been refined into specific projects in people's casual conversations.

Source: The Block

However, in a bear market, people tend to focus on the "utility" of NFTs. Many complain that it has been six years since ERC-721 was first proposed, yet the NFT market still lacks non-speculative use cases and applications.

While these differing viewpoints are important, the cyclical nature of bull and bear markets and the ongoing debates between perspectives can sometimes obscure more critical issues in the development of NFTs. This article aims to revisit the fundamental principles of NFT utility and primarily introduces innovative standards that have emerged in recent years to expand NFT utility and enrich user experiences.

Stepping out of the market to establish a broader perspective

Just as governments can freeze your bank account, seize funds, and prevent you from participating in (legitimate) banking system interactions, centralized content platforms and data monopolists have similar powers in the digital realm. This not only has a terrifying impact on internet censorship resistance but also brings greater challenges, such as highly anti-competitive market dynamics that hinder comprehensive innovation, and new issues regarding data privacy and commercialization in the face of increasing demand for valuable AI training data.

So why is the utility of NFTs primarily focused on the provenance of (expensive) artworks and collectibles?

Typically, after a new technology emerges, the most straightforward and clear-cut applications often take off first, as people need more time to digest, understand, or brainstorm further possibilities of the technology. Another major reason for the slow development of NFT utility and applications is the scalability challenges of blockchain over the past few years, which have limited NFT utility. For example, the latest ERC-6551 standard allows any ERC-721 token to bind to a smart contract account; however, additional functionality often comes with additional costs. As long as creating, distributing, and participating in NFT projects remains costly for most people, engaging in low-cost or "non-speculative" NFT investments contradicts their standards as "rational economic agents."

However, this situation is changing as the massive investments in scalability across the industry are finally starting to pay off. Layer 2 solutions on Ethereum are thriving, and Solana is also making significant progress with its unique architecture and leadership in token standard innovation.

Expanding NFT Utility: Novel Token Standards

(Note: These standards are not necessarily mutually exclusive)

NFT as Application: xNFT

xNFT, also known as "executable" NFT, is a Solana-native NFT standard that interacts with applications based on xNFT using the Backpack wallet as the operating system and key management layer. xNFTs can be used to build collectibles (such as the Mad Lads series of PFPs) or applications, but since they also symbolize the "execution rights" of certain code, developers can build richer experiences through xNFT.

Staking Mad Labs xNFT generates reward points anchored to the NFT

xNFT app store

Most uniquely, xNFT is akin to using on-chain software licenses, allowing developers to easily utilize open-source code structures and control the number of installations, the identity of installers, installation fees, and track upgrades and user interactions of their xNFT applications.

The Backpack team recently launched a new feature called "Soul Abstraction," which not only provides xNFTs with NFT-hosting-like capabilities but also allows developers to freely build additional features or airdrop benefits to xNFT and its holders without needing permission or technical support from the Backpack team.

NFT Economies of Scale: Compressed NFTs (cNFTs)

As the name suggests, compressed NFTs are a new paradigm of NFTs developed by engineers from Solana Labs, the Solana Foundation, and Metaplex, achieved through state compression. The idea originated from community discussions about the conditions required to put application data, like that of Instagram, on-chain, aiming to make "the unit marginal storage cost approach as close to zero as possible."

In simple terms, state compression works by storing the Merkle root of NFT data on-chain while keeping the actual data off-chain. Even if the off-chain data is tampered with, the Merkle root will differ from the data stored on-chain, thus maintaining security. The correctness of NFT data is verified through Metaplex's Bubblegum contract.

Is it really necessary to reduce costs to below 1,000 times? In fact, raising this question needs to wait until NFTs become truly ubiquitous "small images." "Tokenomics for Everything" has become a popular trend, and cNFTs do just that by putting internet data on-chain and transforming it into "persistent sovereign digital objects," making it an economically viable choice that can be realized on a large scale.

This is one of the main reasons why it is crucial to continue reducing minting and issuance costs in terms of scalability. Layer 2 solutions like Arbitrum and Optimism have made remarkable progress in reducing transaction costs, compressing them down by 10 times compared to Layer 1.

These improvements are far from trivial; for example, even a fee of $0.10 to $0.50 can be too expensive for many use cases on Instagram. In reality, it requires even more costly measures to address what seems like "minimal" usage costs. It is worth noting that it is still early for Layer 2 to solve these issues, but that does not prevent us from highlighting some early initiatives of Layer 2 NFT innovations below.

Examples of cNFTs used to enhance user experience:

DRiP

‍DRiP, created by the team behind Solana Spaces, aims to build a crypto-native, creator-centric content distribution platform. By subscribing to their main channel Showcase, users will receive free airdrops from the DRiP team every Wednesday, and they can also subscribe to more creator channels, including Degen Poet, Degenerate Ape Academy, Vault Music, Floor, etc., to receive a variety of digital collectibles in cNFT airdrops.

cNFTs

DRiP

DRiP Creator Channel

Without cNFTs, providing such large-scale content to hundreds of thousands of subscribers would significantly increase costs. It is noteworthy that DRiP's second season distributed over two million NFTs to subscribers, with more than 500,000 in just the past few days.

Dialect

The Web3 messaging platform Dialect has also minted hundreds of thousands of cNFTs for tradable emoji packs. Users can directly buy and sell assets within the messaging interface using Dialect's smart messaging features.

Helium

As an application migrating from its own Layer 1 network to Solana, Helium is now using cNFTs as proxies to put nearly one million unique physical hotspot devices on-chain. Hotspot device operators can claim NFTs after logging into the wallet associated with the hotspot device.

Metaplex

After its Mailchimp account was shut down, NFT infrastructure provider Metaplex turned to cNFTs to send invitations to its new creator studio. Metaplex is now collaborating with Underdog Protocol to develop a cheaper, more crypto-native alternative tool.

NFTs with "superpowers" - Dynamic NFTs, Private NFTs, NFT Hosting, NFT Merging

Dynamic NFTs

The ability to update metadata based on specific on-chain or off-chain events is a subtle yet disruptive superpower. Dynamic NFTs with this capability are generally more meaningful than their static forms in almost all cases. Additionally, to make the deployment and management process more seamless and standardized, dynamic NFTs emphasize extremely high requirements for crypto-native databases and infrastructure.

Private NFTs

One of the earliest examples of private NFTs can be traced back to the SNIP-721 standard of the Secret Network, which Quentin Tarantino used in 2021 to release the "Unleashed Pulp Fiction Scene" as an NFT.

Other solutions also involve Lit Protocol access control and Arweave for permissioned access to encrypted metadata. For instance, the Solana-based music platform Vault Music has utilized this solution to provide private NFTs to its users.

Quentin Tarantino's Private NFT of "Pulp Fiction"

Vault Music Private NFT

NFT Hosting and NFT Merging

Another Solana-native standard, NFT hosting is an extension of the Metaplex token metadata contract. This standard allows any NFT to operate as a wallet and hold its own tokens. It implements two different types of hosted accounts: self-hosted (TOE) managed by the NFT holder and creator-managed (COE) self-hosted. The recently released ERC-6551 also marks the entry of this functionality into the current EVM ecosystem.

NFT merging is an extension solution for NFT hosting functionality, allowing NFTs to be bundled together to create new NFTs and change based on the assets they hold.

Both standards lay a solid foundation for building immersive gaming experiences, allowing players to freely experience token interactions and level-ups after the introduction of these two schemes.

AIGC NFT : NFTs based on AI-generated content as trust and proof mechanisms

EIP-7007 proposes an ERC-721 wrapper that includes functions for checking the validity of prompts and proof combinations using zkML technology. The metadata schema also provides a structure for storing information about AIGC-NFTs, such as prompts, content, proof of ownership, etc. In practice, creators of machine learning models can publish their models and corresponding ZKP verifiers on Ethereum, allowing users to declare an input prompt, publish an inference task, and ultimately receive the output in the form of an NFT. The proposer of this EIP believes this is a way to help commercialize small models.

NFTs in Finance: DeFi and RWA

While DeFi may seem an unlikely place to find new NFT application cases, it turns out that many financial assets, especially derivatives, are non-fungible (which is why Uniswap uses the ERC-721 standard to define V3 LP positions). Therefore, NFTs have many non-obvious use cases in DeFi:

Panoptic (Centralized Liquidity Market Makers and NFTs)

Panoptic is a crypto-native perpetual options protocol based on Uniswap V3 LP positions. Options have a high capital efficiency issue due to the need for collateral, so the team turned to NFTs for solutions to achieve low collateral rate options.

Panoptic essentially replaces Uniswap's non-fungible LP position manager with a semi-fungible position manager using the ERC-1155 interface instead of ERC-721. This allows them to merge multiple options into a single NFT to create "custom risk positions," making it easier to calculate the collateral requirements for a set of interrelated options. This is particularly useful for multi-leg options with an overall risk profile, even if individual options theoretically face unlimited losses, the overall risk of the options can be specifically assessed.

Pantopic uses ERC-1155 tokenID to refer to information about option positions

Homebase (RWA)

Homebase is a platform that allows users to invest in tokenized residential real estate for as low as $100. By converting assets on the trading platform into NFTs, each token has its own unique metadata URI, where information about the asset is stored on the blockchain and updated regularly.

While Homebase and other RWA/NFT financing platforms may seem like "playing house" today, they actually highlight the importance of financial infrastructure specifically built for NFTs. Most assets and many financial positions are actually non-fungible or semi-fungible. These examples also underscore the possibilities that can be achieved by putting more financial metadata on-chain (more information on this topic will be discussed later).

Challenges in Infrastructure

Despite the exciting use cases discussed above, the severe fragmentation of current NFT metadata, whether for incentive mechanisms or data standards, remains a significant barrier to realizing the full potential of NFTs. Today, NFTs exist across various Layer 1 chains and Rollup chains, with metadata storage locations, EVM compatibility, storage methods, etc., all reflecting the fragmentation of metadata.

The key is that as NFTs become containers for more and more content, assets, and experiences, the demand for a decentralized, Web3-based database to bring more composability and functionality to the metadata layer is becoming increasingly urgent. Ideally, such a database would release data "trapped behind centralized walls" as much as possible, allowing for finer exchanges between entities.

One promising example of such a product is Tableland, a SQLite database solution specifically built for Web3 development. Tableland can be seen as an intermediary layer located between Filecoin storage and EVM smart contract logic, allowing databases to be programmed directly from smart contracts. For example, developers can allow specific NFT owners or change certain cells and/or rows based on the results of certain on-chain events. While there is still much work to be done to adapt to updated token standards and ecosystems, it cannot be denied that Tableland has found the right direction.

For more in-depth information: here you can view the list of databases and metadata solutions curated by Tableland.

As artificial intelligence and the digital economy come to the forefront of human life, it will become increasingly difficult to thread the needle between extracting/controlling data and protecting digital property rights. NFTs may be the best opportunity to break through the barriers between data control and the protection of digital property rights.