December 26, 2023 - 9 min read
ERC-6551 is a new type of dynamic NFT standard on the Ethereum blockchain. ERC-6551 NFTs can own other NFTs and Ethereum ERC-20 tokens (like USDC and ETH), interact directly with smart contracts, and alter their metadata over time. This allows these ‘token-bound account’ (TBA) NFTs to act like traditional crypto wallets.
In addition, these NFTs have significantly more utility than ERC-721 or ERC-1155 NFTs, particularly in the realms of GameFi, DeFi, on-chain identity management, and NFTs representing ownership of real-world assets, like real estate. ERC-6551 NFTs are also more interoperable than other types of NFTs, as they can interact with smart contracts and own NFTs on other EVM-compatible blockchains.
ERC-6551 is the newest Ethereum NFT standard, as it debuted on the Ethereum mainnet on September 7th, 2023. ERC-6551 NFTs are also more secure than traditional NFTs, as all transactions involving ERC-6551 NFTs are immediately recorded onto the blockchain. In addition, this NFT standard provides a complete history of the asset’s previous ownership, which can help prevent fraud, theft, and NFT-based money laundering.
As with the ERC-721 and ERC-1155 token standards, the ERC-6551 NFT standard began as an EIP or Ethereum Improvement Proposal. Much like the ERC-1155 token standard was initially developed by developers from Enjin, the ERC-6551 standard was initially spearheaded by developers from the NFT creator platform Manifold and the Web3 venture studio Future Primitive.
EIP for ERC-998: Composable Non-Fungible Token. Source: EIPS: Ethereum.org.
However, it should be noted that the ERC-6551 standard was not the first effort to create a more dynamic NFT standard that would allow an NFT to own other tokens. In particular, the ERC-998 NFT standard, first proposed in July 2018, allows for ERC-998 NFTs to own ERC-721 and ERC-20 tokens. However, since this standard was created before the development of the increasingly popular ERC-1155 dynamic NFT standard, it does not allow for the ownership of ERC-1155 NFTs. It is also less interoperable with other EVM-compatible chains and does not have the same level of ability to interact with smart contracts directly.
While the creation of ERC-721 and, eventually, ERC-1155 NFTs revolutionized the blockchain and GameFi industries, these token standards have significant limitations, which the ERC-6551 standard was specifically designed to address.
For example, the ERC-721 token standard, the first NFT standard on the Ethereum blockchain, cannot change its metadata over time (since its JSON metadata is static). This means it cannot incorporate new security measures or change their attributes over time. While ERC-1155 NFTs can change their metadata over time, they cannot own other NFTs or interact directly with smart contracts, do not record the NFTs’ full ownership history, and are not inherently interoperable with other EVM-compatible blockchains.
ERC-6551 Transaction Data and Popularity on Different Chains
ERC-6551 transaction data, mid-Q4 2023. Source: Dune Analytics.
According to data from Dune Analytics, as of mid-Q4 2023, over 31,000 ERC-6551 token-bound accounts had been created across a variety of EVM-compatible blockchains. These NFTs held approximately 15,000 other NFTs inside them. Interestingly, Polygon has been a far more popular chain for ERC-6551 NFTs than Ethereum itself, with more than two-thirds of all ERC-6551 accounts on Polygon compared to slightly more than 15% on the Ethereum mainnet.
This is likely because of the significantly lower transaction costs and higher transaction speeds on Polygon, as well as the inherent interoperability of this new NFT standard (since, as a Layer-2, Polygon is fully EVM-compatible.) The only other chains with recorded ERC-6551 transactions include Optimism, Gnosis, and Base, which, combined, contributed to less than 1% of all recorded transactions.
ERC-6551 uses chart. Source: Bankless.
In addition to their generally increased utility, ERC-6551 NFTs have a variety of specific use cases that will likely significantly increase their popularity in the near future. A few powerful use cases include:
DAO Identity and Governance: DAOs have lots of potential, but it can be difficult to determine which members have truly contributed to the organization and even more difficult to reward them for their contributions. By using ERC-6551 NFTs, DAO members can utilize their token-bound account to collect NFTs that provide proof of ID, proof of achievements, and proof of reputation, as well as POAPs, collectible images, and other utility-based NFTs.
In addition, these NFTs could play a role in DAO voting. This is because most DAOs are currently governed by a one-token, one-vote system, which may be more equitable and democratic than traditional corporate governance but still may give undue voting power to whales, who often hold the majority of the DAOs tokens. This leaves ordinary members, often including those who actually contribute most to the DAO, with little say in the organization’s governance. ERC-6551 NFTs, much like ERC-1155 NFTs, could be a powerful way to institute a blockchain ID-based “one member, one vote” system, making DAOs significantly more fair, equitable, and democratic.
Crypto Gaming and GameFi: ERC-6551 NFTs can simplify and supercharge the blockchain gaming experience by allowing gamers to hold all their assets in a single NFT, including ERC-1155 dynamic NFTs, which have become increasingly popular for in-game items like clothing, accessories, and weapons, such as swords or staffs for historical or fantasy-based RPGs, which can become more or less powerful over time based on a gamer’s actions. Additionally, the ERC-6551 standard may provide a smoother and more streamlined environment for GameFi developers, particularly due to the standard’s high level of interoperability.
Large NFT Asset Transfers: Currently, the process of transferring ERC-721 NFTs is extremely expensive, with users needing to pay gas fees for every NFT bought or sold. While ERC-1155 NFTs do enable batch transfers, the process may not be as smooth as it could be. In contrast, since ERC-6551 NFTs can own an unlimited amount of other NFTs, a user can sell an entire NFT collection consisting of hundreds (or thousands) of individual NFTs in just one transfer, meaning they only need to pay gas fees once.
Token Indexes: ERC-6551 NFTs allow for the creation of token indexes, making it easier for individuals to execute complex decentralized investing strategies. For example, an ERC-6551 can hold an index of ERC-20 tokens representing a wide swath of crypto assets and can even hold unique tokens like Liquid Staking Derivatives (LSDs) in just one NFT.
As of mid-Q4 2023, some of the most popular ERC-6551 NFT collections included:
Cre8ors isn’t a single NFT collection but rather a decentralized protocol that hosts a group of NFT collections powered by the ERC-6551 standard. Their website describes Cre8tors as “a next-gen media brand made for the metaverse; powered by our curated collective of web3 creators, IP co-creation protocols and AI-enabled NFTs.” Specifically, Cre8ors allows artists, musicians, and other professionals to “collaborate, license, and get paid with [the] CR8 protocol and dApps.” The protocol also allows for “soft staking.” Soft staking is a way of earning staking rewards without a lockup period. This is in contrast to hard staking, which often involves a lockup period, sometimes up to or longer than 180 days, depending on the specific protocol used.
Somewhat like Cre8tors, Atti isn’t a specific NFT collection but “a suite of social utility protocols enabling people and communities to leave their stories on-chain.” Since the project was initiated in mid-2022, it’s accumulated more than 700,000 users and has been funded by major crypto VCs like ProDigital Future Fund and Alchemy Ventures. Atti is currently a centralized protocol but is in the process of transferring governance to AtticcDAO, which will have its own treasury intended to release the protocol’s native $ATT token after the protocol’s upcoming token generation event (TGE).
Sapienz, styled as “SAPIENZ,” is “a collection of 15,000 networked playable characters created in partnership between STAPLEVERSE and RHYMEZLIKEDIMEZ.” SAPIENZ NFTs consist of stylized, human, and humanoid avatar PFP NFTs. Since every SAPIENZ NFT has its own token-bound account, owners can use their primary SAPIENZ NFT to hold other NFTs, including SAPINEZ wearables. SAPIENZ is only one part of the broader STAPLEVERSE creative collective, which offers a variety of mentorship and collaboration opportunities for artistic creators, including musicians and music producers, artists, apparel creators, and fashion designers.
The Managers describes itself as “an innovative NFT collection harnessing the power of ERC-6551 or TokenBound Account (TBA) technology.” The collection’s creators plan to significantly emphasize ERC-20 and ERC-1155 token airdrops as a way to reward NFT owners and collectors while fostering an environment of creativity and community collaboration. Each PFP avatar NFT represents a different “manager” within a creative and subversive imaginary office space, with common elements including laser eyes, unique hairstyles, and sunglasses, just to name a few.
The Nameless, an ERC-6551 collection created by the PVNKS artist’s collective, is a PFP collection of 3,333 unique comic-style artworks. By burning one comic, an NFT owner can receive one PFP NFT in return. The Nameless NFT collection is focused around a unique comic-based storyline in which a group of rebels known as “The Nameless” attempt to shut down a future dystopian regime called the “United Government.” After a failed coup attempt, 4,000 suspected rebels were taken to a secret facility and are presumed to be dead– but a new data leak reveals that The Nameless is far from finished, and they might just have what it takes to overthrow the United Government for good.
In addition to these notable NFT collections, a variety of dApps are incorporating ERC-6551 functionality. For example, the decentralized social media platform Lens announced in July 2023 that it would allow users to utilize ERC-6551 tokens as PFPs on their site, and multiple other platforms are considering doing the same.
ERC-6551 NFTs are by far the most dynamic, useful, and innovative form of NFTs available today. Since ERC-6551 NFTs can own an unlimited number of ERC-721 NFTs, ERC-1155 dynamic NFTs, and ERC-20 fungible tokens, are incredibly interoperable, and can interact directly with smart contracts, they represent the forefront of NFT technology as we know it today. Just as ERC-1155 NFTs provide significantly more utility than ERC-721 NFTs, ERC-6551 NFTs provide significantly more utility than ERC-1155 NFTs.
Due to this, this new NFT standard will likely only become more popular over time and may even surpass ERC-721 and ERC-6551 NFTs in popularity. With a variety of applications in GameFi, DeFi, blockchain identity, DAO governance, and real-world asset ownership, the ERC-6551 NFT standard has an incredibly bright future and is certainly something that both crypto enthusiasts and blockchain professionals should continue to keep tabs on in the coming months and years.
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