ERC-6551: NFT is a wallet, bringing a new paradigm of SocialFi

ERC-6551 makes NFT itself a wallet with an address.

Written by: veDAO Research Institute

In today's crypto world, more and more people are using NFTs as a form of on-chain identity. The current ERC-721 token (NFT) does not have proxy functions or own other on-chain assets, which is out of sync with the use cases of non-fungible assets in the real world. Hence the ERC-6551 proposal. It solves this problem by granting each NFT the full functionality of an Ethereum account, while maintaining compatibility with existing ERC-721 contracts.

What is ERC-6551?

The ERC-6551 proposal is a new token standard that greatly enhances the functionality of ERC-721 (NFT), and was released on the Ethereum mainnet on May 7, 2023: Through ERC-6551, one or Multiple smart contract wallets, making it more composable, dynamic and interactive. In simple terms, ERC-6551 makes the NFT itself a wallet with an address.

These wallets are called "Token Bound Accounts", or TBA for short (TBA control is delegated to NFT holders, that is, NFT holders can use TBA to initiate on-chain operations). Using TBA, you can transfer Any crypto asset is stored in an NFT that you own. For example, if you purchased BAYC before, you need to put it in Metamusk; through ERC-6551, you need to create a TBA for storing BAYC. At the same time, not only ETH can be stored in BAYC's TBA, but also other NFTs. At the same time, as a "wallet", TBA can also be used to interact in dApps. It is worth noting that a single NFT can also have multiple token-bound accounts through ERC-6551. In this sense, one 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 (TBAs), and the registry:

Changes brought by ERC-6551

Through the ERC-6551 standard, users can use NFT to do anything that can be done with ordinary Ethereum wallets. Users can bundle your related assets (NFTs, tokens, identities...) into one NFT, making it easier to manage and transfer your assets across different platforms. If an NFT is sold/transferred, all assets within it will also be transferred. TBA solves the problem that NFT is currently unable to provide detailed information such as source/provenance/historical transaction records. Except for simple information displayed in some NFT markets, buyers usually cannot directly obtain it. NFT markets and lending agreements can use TBA to determine user reputation, simplify some processes, and more.

TBA also brings a new paradigm of decentralized identity. Before TBA, Vitalik once proposed SBT (Soul Binding Token). SBT uses wallet assets to confirm identity, while TBA does not need to verify identity. Instead of binding NFT to wallet, it binds wallet to NFT. This property turns NFT from a static asset into a liquid asset management system. This means that one of your NFTs may become your identity on the chain, and it can prove your credibility through TBA's successful transaction records. TBA's NFT can directly interact with dApps. In GameFi and SocialFi, users can identify asset identities at a glance through NFT, which greatly reduces the cost of confirming rights and can be widely used in airdrops, loyalty programs and in-game rewards.

SocialFi's new help to break the circle

The continuous development of NFT has brought SocialFi to the surface. Social networking in the Web3 world is inevitable. How to incorporate Web3 social networking into the decentralized economic system has been explored by many teams. The innovation of ERC-6551 will directly bring better assistance to the SocialFi track.

Let's look at the characteristics of SocialFi. The core narrative of SocialFi is Web3 social, and Web3 social has three decisive characteristics compared to Web2:

First, it's platform-less. Without a platform, there would be no third-party ownership of user-generated content. Instead, the creator is the owner. By extension, Web3 social networks are also censorship-resistant, meaning social connections cannot be removed or restricted by the platform.

Second, Web3 social data is portable. However, Web3 has an advantage: it uses wallets, which allow for a direct relationship between users and creators so that creators don't have to constantly rebuild fanbases; wallets persist even when personal social protocols are shut down. The end result is that neither fans nor creators are tied to a certain platform. Compared with creating an audience every time on Web2, creators just keep building new audiences, and then lose contact with these audiences because of the platform. Web3 social interaction does not have such troubles.

The third point is that Web3 social networking has strong composability, and the SocialFi protocol obtains value and utility through applications built on decentralized social primitives. The early vibe of Web2 is very similar to today's Web3: the platform is not the main body, but the creators and other users are. However, over time, Web2 platforms typically evolve from partnering with builders to competing with them. The Web3 network is more conducive to combination, because they have always been optimized for cooperation, and at the same time have Token as an incentive for decentralization on this basis.

TBA's fast and low-cost verification mechanism will greatly solve the trust mechanism and transaction costs of Web3, and SocialFi can more easily transform Web2 users into the Web3 world. In this way, TBA enables new use cases that project creators have always wanted to add but haven't found an easy way to do:

• Equip digital clothing and items (RTFKT — CloneX, Doodles)
• ERC-20 token earning/airdrop model (BAYC, Cool Cats, SupDucks)
• POAP or badges earned through participation (Azuki, FWB, Moonbirds)
• Trade the entire collection as a unit (OpenSea bulk transfer)
• NFT, as an on-chain identity, has the ability to layer on social network models (CryptoPunks, Nouns)
• These use cases can become a new boost for SocialFi to break the circle.