Letter 41: ERC-6551 & The Future of NFTs

Token Bound Accounts and why they're so awesome

There are two quite significant and distinct categories of people in crypto: the builders, and the speculators. Yes there is crossover and some people fall into both camps, but by and large, the people working on EIPs (Ethereum Improvement Proposals) are not the same people flipping monkey jpegs and shitposting on Twitter.

The builders build, through bull or bear, and in comparison to the attention-seeking influencers (myself included), they are the unsung heroes of the entire Crypto space.

We would not be here without them.

While we bicker, they tinker.

While we flip, they code.

While we gamble, they debate proposals.

All this to say — recently there was a MASSIVE improvement to the entire Ethereum NFT ecosystem and very few people are talking about it (again, relative to the amount of attention being given to the latest Azuki or Yuga FUD).

I hope to shed a bit more light on this new improvement, lovingly known as ERC-6551.

What is it? How does it work? How will it make the future better?

But first..

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What the hell even is an ERC?

Before we even get started, it might be helpful to discuss what an ERC is. I’m sure many of you know so feel free to skip ahead, but for those who don’t and keep seeing these three letters thrown around, I thought a quick definition might be useful.

ERC stands for Ethereum Request for Comments. I know, it’s confusing.

A simpler way of thinking of this is that an ERC is an agreed-upon standard for all developers to use when building on top of Ethereum.

The way something becomes an ERC is that it starts out as an EIP: Ethereum Improvement Proposal.

A person (or persons) will put together a proposal for a new standard and submit it for public review and discussion, and if accepted by the Ethereum developer community, it will become an ERC that anyone can use.

The most common ones are

• ERC-20 (fungible tokens, such as $APE, $UNI, $AAVE)

• ERC-721 (non-fungible tokens, such as Bored Apes, Doodles, or ZenChests)

• ERC-1155s (multi-token that can be both fungible and non-fungible, such as The Memes by 6529 or our original ZenAcademy Genesis Letters)

A few months ago I also wrote about ERC-4337 which is a standard that allows for smart accounts - I recommend reading it as it’s pretty freaking mind blowing.

Ok, so what is ERC-6551?

At a high level, ERC-6551 (also known as Token Bound Accounts) makes it possible for NFTs to have their own wallet. Rather than a person owning assets, the token itself can hold custody of the assets.

Basically, every NFT can now own / store within it ETH as well as ERC-721, 1155, and 20 tokens.

Actually an NFT can store an NFT which itself stores other NFTs.

It’s NFTs all the way down.

Err… How?

This is where things get a little more complicated but bear with me.

The gist of it is that there is an on-chain and permissionless Registry (a smart contract) which can be used by anyone to create token bound accounts and deploy them for any NFTs.

These token bound accounts are “smart contract wallets”. So they’re not wallets in the traditional sense, but instead smart contracts that act as a wallet and and can only be controlled by the owner of the parent NFT.

The Registry has already been deployed, is immutable, and owned by no-one, so it cannot be changed. The code is all open-source.

The beauty of this is that it’s backwards compatible, so all existing NFTs are able to hold tokens. Honestly it’s a technological marvel that they were able to do this. You don’t need to wrap tokens, upgrade contracts, etc. It just.. works.

Actually, all NFTs already have their own accounts. If you own NFTs.. those NFTs have their own accounts. The infrastructure for interacting with them is still catching up, but TokenBound is a fantastic resource for people wanting to already jump in and try it out.

This diagram breaks it down into further detail for those tech-minded out there, but feel free to gloss over if it’s not making total sense - we don’t all need to know how a car works in order to appreciate how useful and cool they can be.

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Why?

My favourite question in the world! (my favourite answer to this, and every question, is “it depends”, but we’re digressing at a shockingly rapid pace here).

It’s always good to ask WHY — why might we want NFTs to custody assets? What are the use cases? How does this make the future better?

And the answer is.. in many ways!

The first thing that came to mind to me was airdrops.

Instead of projects taking snapshots and airdropping tokens to the holders of NFTs, they can airdrop them directly to the NFTs themselves.

Think about that for a moment.

This eliminates the need for all the pre-snapshot/post-snapshot kerfuffling about. No more immediately flooring the collection after the snapshot. The airdrop goes directly to the NFT, and everyone can see clearly on-chain the assets held within that NFT.

But there are lots of other ways ERC-6551 makes a lot of sense too. Think about playing a game and owning your character. Now think about all the items that character might own: weapons, clothing, potions, in-game currency, etc. Previously these would all have been separate tokens all connected to the person’s account, now they can all be owned by the character / NFT itself. So that if you were to trade it, everything associated with be traded in one clean transaction.

Another example is “sets” of NFTs that go well together. Often people want to trade a full-set from an ecosystem. In the past this would require a lot of individual trades - with 6551, you can have a single NFT own the entire set. As an example, you could have a full set of The Memes by 6529 traded in a single and neat transaction.

All of this improves efficiency in the market and opens the door for innovative new use cases.

One more interesting idea is that the NFT itself can now have a trading history, a collection, an identity. A… life? What happens when you infuse ERC-6551 + Artificial Intelligence? Give your NFT some ETH and tell it go to trade and see what it collects.

The future is going to be absolutely insane btw in case you weren’t aware. None of us are prepared.

Examples?

We’re still very early so there aren’t too many examples out there yet of people already using ERC-6551 but there are some:

Parallel is giving AI Avatars their own wallets 🤯

Stapleverse has already integrated wearables into their Sapienz collection. In fact you can already see it in action on opensea:

If anyone knows of any more, please drop a comment below - I’d love to discover more!

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Finally.. A THANK YOU

Harkening back to the unsung heroes of our space — I want to give a huge shout out and THANK YOU to everyone who worked on building this ERC standard and are continuing to champion it:

Jayden Windle, Benny Giang, Steve Jang, Druzy Downs, Raymond Huynh, Wilkins Chung, Paul Sullivan (taken from here)

I’m sure there were many more contributors, thank you one and all 🙏

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Additional Reading / Resources

Token Bound - Use any NFT as a wallet

ERC-6551 Proposal

Initial Announcement Post

OverpricedJpegs episode w/ BennyGiang

Two great threads by 0xcygaar:

https://twitter.com/0xCygaar/status/1669365849487187968

https://twitter.com/0xCygaar/status/1670817089010171904

More great reading:

https://medium.com/future-primitive/tldr-nfts-have-their-own-wallets-try-it-here-

https://twitter.com/WhatTheLJW/status/1671156620376805381

https://twitter.com/beast_eth/status/1663921578399154177

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Disclaimer: The content covered in this newsletter is not to be considered as investment advice. I’m not a financial adviser. These are only my own opinions and ideas. You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency related product.