Interpreting the new ERC-6551 proposal: creating a new standard for non-fungible tokens for social and gaming

By Ishanee, IOSG Ventures

ERC6551 is a new proposal from a third-party team (Future Primitive) that has recently caused a stir in the Non-fungible Token community. The reason is simple – it opens up vast possibilities for new and existing Non-fungible Token projects without the need for packaging and using complex multi-threaded ERCs to bond together or rely on centralized companies.

The beginning of the story

Benny Giang, the first author of ERC, has several years of experience in the crypto consumer space and dealing with non-fungible tokens. He was an early team member of Cryptokitties, NBA TopShot, and even a co-founder of Bistki. A few years ago, he founded FP with Jayden Windle as a consultant to provide ideas and consulting for brands and projects that want to launch new Non-fungible Token collections. While working on a project, the team ran into a problem and began to ideate about ERC-6551 – the customer wanted to have an Non-fungible Token collection, where each Non-fungible Token itself contained any benefits offered to it in the future, and if the original Non-fungible Token was traded in the future, those benefits would not be lost.

When the team developed 6551, there were some basic principles that they shared on ETH Lisbon:

• It should be backwards compatible with existing Non-fungible Tokens
• It should be Decentralization and no permissions required
• It should be a simple (ideally one-off) implementation so that Non-fungible Token projects don’t have to rewrite codebases that may involve security issues.

Special attention should be paid to the third point, as Non-fungible Token projects often have limited resources (compared to the broader crypto market) and therefore have less budget on security audits. Teams often replicate and use industry “standards”, leaving little room for innovation and experimentation.

A brief description of Proposal ERC-6551

The proposal introduces a registry contract that is deployed on each chain to power all Non-fungible Tokens on that chain. The registration contract uses the CreateTo feature to assign a predetermined WalletAddress to each Non-fungible Token. CreateTo allows developers to deploy Smart Contracts to predetermined Addresses.

The Smart Contract (account) deployed is called Address Token Token Bound Address (TBA). The Address is tied to an Non-fungible Token, and any parent Wallet that owns the Non-fungible Token has full access to it. Since TBAs are wallets/accounts in their own right, they are more than just properties; they have full functionality like any other wallet and can hold other Non-fungible Tokens, ERC-20, POAP, and/or any future adopted Token Standard.

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Data tracking

Since the activation of the first TBA in May 2023, the Ethereum and Polygon communities were among the first to quickly adopt this standard. There are a total of 64k activated TBAs, 1.7k TBA-related transactions, and 18k Non-fungible Tokens in activated TBAs across all EVMs.

TBA’s most active Non-fungible Token collector

The most active TBA on Ethereum, Source: Dune

The most active TBA (link to Good Minds #3206) owns many other Non-fungible Tokens in the collection, which can be seen by tracking the activity of TBA on Etherscan, which is a unique use of TBA. Where Non-fungible Token Wallet continues to collect other works from the same series, it will therefore have a percentage of the total Token of the series in the same Wallet.

Any bid on this Non-fungible Token (3206) must technically take into account the price of all assets collected in its TBA (assuming the assets are not traded or transferred from the Non-fungible Token at the time of sale).

A TBA of a Good Mind Non-fungible Token has a percentage of other Non-fungible Token under the same series, and these Non-fungible Token are nested under its TBA. The development of the TBA standard was carried out by tokenbound.org, an organization working with multiple teams that wanted to incorporate this standard into its products.

Comparison with other Non-fungible Token standards and companies

While there have been multiple Non-fungible Token solutions in the past, none of them have the same advantages as TBA/6551. Key criteria to consider include:

• Non-fungible Token Is it possible to hold other assets such as Non-fungible Token, ERC20, ERC1155, POAP, etc.?
• Does Non-fungible Token require packaging/extra steps?
• Is the new standard compatible with existing dApps?
• Is it Decentralization?

Source：IOSG Ventures

Use cases for ERC-6551

GAMING ASPECT

Collectible games like Illuvium and Colony motivate players to accumulate in-game assets. Typically, the Wallet accumulates assets as the player progresses through the game. However, when trading a role, the assets associated with it do not seamlessly transfer to the new owner. Instead, players will usually choose to sell their entire Wallet, ensuring that the main character and their related assets are sold together.

With TBA-enabled character Non-fungible Tokens, players can now sell experienced character Non-fungible Tokens and eliminate the need to sell entire wallets or go through multiple or bundled sales processes. Assets held in the TBA are seamlessly transferred to the new owner when the sale is completed.

The second benefit of using 6551 is that the pricing mechanism for characters and their associated assets is brought on-chain and becomes transparent. Bidding and selling now happen on-chain, providing a transparent and secure trading environment.

Social Aspects

The Lens Profile is just like your ENS Address and is a Non-fungible Token. Activating TBA for both allows users to cultivate a chained identity tailored to their social profile Non-fungible Token rather than their Wallet. While this difference is insignificant to the end user, it is significant for organizations seeking to build and leverage a social or interest map.

Social protocols like Hats – creating Non-fungible Tokens with built-in access controls to access DAO functionality (and working as on-chain verifiable LinkedIn) can use TBA-enabled Non-fungible Tokens. Non-fungible tokens distributed to core community members (non-paying employees) can be used as tokens for future Airdrops, discounts, and any other benefits.

Brand Campaign

In line with the idea of creating a TBA-based social/interest graph, brands can target the entire community (e.g., BAYC, Pudgy Penguins, etc.) with one click, eliminating the need to constantly index and update the WalletAddress that will receive benefits. TBAs eliminate the need for “snapshots” and simplify the database and bookkeeping functions that many brands would otherwise need to perform.

Other

TBAs can support other industries such as digital fashion, real estate, Decentralized Finance, NFTFi, etc. in the future, but the scope of their application is not yet clear, as these are mostly emerging industries, or inventions that have matured to 6551 do not bring a 10x improvement to current practice.

Impact on the existing Non-fungible Token market

The introduction of TBAs represents a significant improvement in user experience, but also brings significant changes in bidding, pricing, and execution dynamics in the Non-fungible Token marketplace.

Market Bid

Normal bidding on Blur represents an assessment of the value of a single Non-fungible Token, taking into account factors such as the collection’s trading volume, minimum price, item rarity, and overall item quality. But for TBA-enabled Non-fungible Tokens, buyers need to evaluate not only these metrics, but also the value of the assets being held within the TBA. Now, Non-fungible Tokens can claim a premium based on their participation in other assets or activities, and buyers are willing to pay for it.

Interestingly, if a seller is not satisfied with an offer, they can transfer some assets from the TBA given the assets held by the TBA. They can then accept what was initially considered a low offer, in which case the responsibility for fair pricing shifts to the end user.

Execution

As the previous example shows, when buyers change their understanding of their purchases due to changes in TBA holdings, the marketplace must implement buyer protections to prevent end-user exploitation. This could involve setting up escrow for Non-fungible Tokens with active TBAs, or adding double confirmations, such as signatures, to accepted bids and goods to ensure a more secure trading environment.

Conclusion

ERC-6551 is a refreshing proposal and innovation in the Non-fungible Token space, and today’s sluggish Non-fungible Token market has been a painful experience for many Non-fungible Token collectors in 2021. The direction promises too much but not enough for CC0s, interesting IPs, and Token utility. It created many Non-fungible Token millionaires, but ended up leaving scars on many. 6551 brings new features to Non-fungible Token, and hopefully the next generation of Non-fungible Token projects will be able to take full advantage!