ERC-6551: NFT as Wallet, Bringing a New Paradigm for SocialFi
In today's crypto world, more and more people are using NFTs as a form of on-chain identity.Author: veDAO Research Institute
In the current crypto world, more and more people are using NFTs as a form of on-chain identity. However, the current ERC-721 tokens (NFTs) lack proxy functionality or do not own other on-chain assets, which is not in sync with the use cases of non-fungible assets in the real world. This has led to the emergence of the ERC-6551 proposal. It addresses this issue by granting full Ethereum account functionality to each NFT while maintaining compatibility with existing ERC-721 contracts.
What is ERC-6551?
The ERC-6551 proposal is a brand new token standard that greatly enhances the functionality of ERC-721 (i.e., NFTs), released on the Ethereum mainnet on May 7, 2023: with ERC-6551, one or more smart contract wallets can be created for NFTs, making them more composable, dynamic, and interactive. In simple terms, ERC-6551 turns the NFT itself into a wallet with an address.
These wallets are called "Token Bound Accounts" (TBA), which delegates control to the NFT holder, meaning that NFT holders can initiate on-chain operations using the TBA. With TBA, you can store any crypto assets within the NFT you own. For example, if you previously purchased a BAYC, you would need to put it in Metamask; with ERC-6551, you create a TBA for storing the purchased BAYC. Additionally, you can store not only ETH in the BAYC's TBA but also other NFTs. As a "wallet," TBA can also be used for interactions in dApps. Notably, a single NFT can have multiple token bound accounts through ERC-6551. In this sense, an NFT can now contain multiple wallets, and so on.
The system introduced by ERC-6551 mainly consists of two parts: a permissionless registry for deploying token bound accounts and a standard interface for interacting with these accounts. The diagram below illustrates the relationship between ERC-721 tokens, ERC-721 token owners, token bound accounts (TBA), and the registry:
Changes Brought by ERC-6551
With the ERC-6551 standard, users can do anything with NFTs that they can do with a regular Ethereum wallet. Users can bundle their related assets (NFTs, tokens, identity features…) into a single NFT, making it easier to manage and transfer their assets across different platforms. If the NFT is sold/transferred, all assets within it will also be transferred. TBA addresses the current inability of NFTs to provide detailed information such as source/origin/history of transactions; aside from some NFT markets displaying simple information, buyers often cannot directly obtain this information. NFT markets and lending protocols can use TBA to determine user credibility and simplify some processes, among other things.
TBA also introduces a new paradigm for decentralized identity. Before TBA, Vitalik proposed SBT (Soulbound Tokens), which confirmed identity by utilizing wallet assets, while TBA does not require identity verification; it does not bind the wallet to the NFT, but rather binds the NFT to the wallet. This property transforms NFTs from static assets into a liquid asset management system. This means that a certain NFT could become your on-chain identity, and it can prove your credibility through successful transaction records via TBA. TBA's NFTs can directly interact with dApps, allowing users to easily identify asset identities in GameFi and SocialFi, significantly reducing the cost of rights confirmation, and can be widely used in airdrops, loyalty programs, and in-game rewards.
New Support for SocialFi Breaking Boundaries
The continuous development of NFTs has allowed SocialFi to truly come to the forefront. Social interaction in the Web3 world is inevitable, and how to incorporate Web3 social interactions into a decentralized economic system has been explored by many teams. The innovation of ERC-6551 will provide better support for the SocialFi sector.
Let’s take a look at the characteristics of SocialFi. The core narrative of SocialFi is Web3 social interaction, which has three decisive characteristics compared to Web2:
First, it is platformless. Without a platform, no third party owns the content created by users. Instead, creators are also the owners. Extending this, Web3 social networks also have anti-censorship properties, meaning social relationships cannot be deleted or restricted by platforms.
Second, Web3 social data is portable. However, Web3 has an advantage: it uses wallets, which allows for direct relationships between users and creators, so creators do not have to constantly rebuild their fan base; even if an individual social protocol shuts down, the wallet still exists. The end result is that neither fans nor creators are bound to any particular platform. Unlike the need to establish an audience each time on Web2, followed by creators constantly building new audiences and then losing contact with them due to platform issues, Web3 social does not have such concerns.
Third, Web3 social has strong composability. SocialFi protocols gain value and utility through applications built on decentralized social primitives. The early atmosphere of Web2 is very similar to today’s Web3: platforms are not the main entities; creators and other users are. However, over time, Web2 platforms typically evolve from collaborating with builders to competing against them. Web3 networks are more conducive to composability because they have always been optimized for collaboration, with Tokens serving as decentralized incentives.
The rapid and low-cost verification mechanism of TBA will greatly address the trust mechanisms and transaction costs in Web3, making it easier for SocialFi to convert Web2 users into the Web3 world. In this way, TBA enables project creators to realize new use cases they have always wanted to add but have not yet found simple methods for:
- Equipping digital clothing and items (RTFKT --- CloneX, Doodles)
- ERC-20 token earning/airdrop models (BAYC, Cool Cats, SupDucks)
- POAP or badges obtained through participation (Azuki, FWB, Moonbirds)
- Trading entire collections as a single unit (OpenSea bulk transfer)
- NFTs as on-chain identities, with the ability to layer in social network models (CryptoPunks, Nouns)
- These use cases can all become new support for SocialFi breaking boundaries.
