The ERC-721 standard has made NFTs popular on the Ethereum network as digital and verifiable assets. Now with an NFT users can directly own assets, interact with Web3 applications and serve as on-chain identifiers through a new standard called ERC-6551. So what’s special about ERC-6551? Let’s find out with the Weakhand team in this article.
What is ERC-6551?
Introducing ERC-6551
ERC-6551 is a new standard that enhances the functionality of NFTs by linking each ERC-721 NFT to Token Bound Account (TBA) only. The ERC-6551 standard launched on the Ethereum mainnet on May 7, 2023 enables asset ownership, application interaction, and on-chain operations without changing existing infrastructure.
The benefits of ERC-6551 include enhanced security, simplified user experience, transaction efficiency, and innovative use cases such as decentralized lending. By equipping ERC-721 tokens with TBA, ERC-6551 opens up opportunities in decentralized exchanges, NFT composability, lending platforms, on-chain identities, and portfolio management automatic investment. It maintains backward compatibility and fits with existing Ethereum infrastructure, driving DeFi adoption and blockchain industry growth.
What is ERC-6551
What are Token Bounded Accounts (TBA)?
Token Bounded Accounts (TBA) are smart contract accounts controlled by NFTs. TBA can do everything a regular wallet can do and is compatible with any NFT a user owns. This means that each NFT will be permanently tied to a wallet called Token Bounded Accounts. So now users can add any ERC-20, ERC-721 and ERC-1155 assets to their NFT. I have an illustrative example of Token Bounded Accounts as follows:
The example above NFT Sapienz uses the ERC-6551 standard
In the image above, NFT Sapienz owns 2 more NFT assets called hat and shirt outfits. Another special feature is that users can transfer NFT Sapienz or these 2 skins to other NFTs or wallet addresses.
Application of ERC-6551 When Applied to NFTs
Enhanced security for NFTs
One of the important aspects of ERC-6551 is its focus on enhancing the security of NFTs. With the growing popularity of digital assets, it is important to have strong security measures in place. The ERC-6551 standard helps NFTs interact directly with Web3 applications instead of having to go through a third-party intermediary application, which helps users minimize risk to users’ digital assets.
Improved functionality for NFTs
Not only in terms of security, ERC-6551 also brings functional improvements to NFTs. The creation of the new ERC-6551 standard with the combination of ERC-721 and TBA opens up new use cases that most project creators want to add but haven’t found an easy way to do on-chain:
- Costumes and digital items (RTFKT – Clone X, Doodles)
- ERC-20 token earn model (BAYC, Cool Cats, SupDucks)
- Poops or badges earned for participation (Azuki, FWB, Moonbirds)
- Trade multiple NFTs as one NFT (buy, sell in bulk on OpenSea)
- On-chain NFT identification on Social Network models (CryptoPunks)
Empowering users in the Gaming space
Users participating in Web3 games can now easily control their NFTs through the ERC-6551 standard. I will give the following example so everyone can see the great potential that the ERC-6551 standard brings to NFTs:
For example, in the famous game League of Legends, Alice bought a champion character, Yasuo – everyone can see this as an ERC-721 NFT. Alice plays in the game and earns rare Skins such as: True Dragon Sword Yasuo and Space Swordsman Yasuo. All Skins and champion characters will be integrated into 1 account – everyone can see this as an ERC-6551 NFT, Alice can choose the appropriate Skins to play in the game or sell costumes and accounts. to others and whether the account value is high or low depends not only on the Yasuo character but also on the Skin that Alice earns.
Application in Defi
NFTs can contain any asset, it can be another NFT or a cryptocurrency. By aggregating assets under a single address, more sophisticated forms of finance can take place.
Imagine an Azuki with a floor price of 10 ETH, Alice can’t do much except sell or maybe lend. So let’s say Alice borrows 5 ETH, if the floor price drops to 6 ETH then Alice’s NFT will be liquidated.
However, if Alice upgrades Azuki to the ERC-6551 standard and deposits 7 ETH into the NFT, Alice will not have to worry about the NFT even if Azuki’s floor price goes to 0. Alice will not be liquidated simply because of her assets. Azuki’s collateral has exceeded the liquidation limit.
On-string identifier
Application of ERC-6551 standard in identification
With the ERC-6551 standard, NFTs can interact with dApps independently without having to rely on the wallet that holds them. So NFTs can represent a user’s digital identity and open up new potential for areas such as: Unsecured loans, loyalty programs or in-game rewards based on behavior during the game. NFT’s past. This could also impact the value of NFTs held by users as platforms could use the identity and reputation of users’ NFTs to determine trustworthiness or de-risk the platform.
