With the explosion of art NFTs over the past year or so, people’s exploration of NFTs has become more diverse and in-depth. The application scenarios of NFTs are no longer limited to PFP and various art works. Market factors such as the demand for asset digitization and digital asset rights confirmation make financial NFTs likely to become the most widely used application in the NFT field.
Different financial logics have different logical requirements for tokens. This Mid-Autumn Festival, we will talk about the development of NFT from the perspective of ERC-20, ERC-721, ERC-1155, and ERC-3525, which are closely related to NFT in the evolution of ERC. Let’s discuss what gameplay NFT currently supports, what representative products are currently distributed on the market, and what market segments can be expected in the future.
First, let us briefly understand what ERC is and the evolution process of ERC.
ERC（Ethereum Request for Comments）
The full name of ERC is Ethereum Request for Comments. This document describes the core protocol specifications, client APIs, and contract standards that developers need to follow when developing based on the Ethereum ecosystem.
Today we will mainly talk about ERC-20, ERC-721, ERC-1155, ERC-3525 and ERC-4907, which are closely related to asset digitization and digital asset rights confirmation.
ERC-20（Token Standard）
ERC-20, also known as the homogeneous token standard, was first proposed in 2015 and was finally integrated into the Ethereum ecosystem in 2017. ERC-20 introduced a token standard for creating fungible tokens on the Ethereum blockchain. Based on the same smart contract under the ERC-20 standard, no matter how many tokens are issued, each token is exactly the same in type and value.
Tokens issued based on ERC-20 usually have the following characteristics:
Homogenization
Interchangeable
Fixed Supply
As the most popular token standard on Ethereum, tokens issued based on ERC-20 represent the value of alternative assets and are widely used in voting, staking, and project fundraising, such as UniSwap's platform token UNI.
At the same time, the birth of ERC-20 also laid the foundation for the emergence of other Ethereum token standards in the future.
ERC-721（Non-Fungible Token Standard）
ERC-721 non-fungible tokens, also known as NFTs, were first proposed in January 2018, inspired by ERC-20 and built on the two years of experience since the creation of ERC-20.
Since tokens written based on the ERC-20 standard are homogeneous and cannot meet the ownership of digital/physical assets, people need distinguishable tokens. Tokens created using the ERC-721 token standard can be distinguished, allowing people to track the ownership of each NFT by querying on-chain data.
Tokens issued based on ERC-721 usually have the following characteristics:
Non-homogeneous
Traceability
Interchangeable
Fixed quantity
Tokens issued based on ERC-721 are widely used in the confirmation of digital and physical asset ownership, helping to realize a diversified asset world. For example:
Physical property — houses, unique works of art
Virtual Collectibles — Unique images of kittens, collectible cards, objects from the Metaverse
“Negative” assets — loans, encumbrances and other liabilities
for example:
Cheese made three cat photos taken today into three NFTs according to the ERC-721 protocol. The contract addresses of these three NFTs are different. Cat A contract address: 0x495f947276749ce646f68ac8c248420045cb7b5e Cat B contract address: 0x495f947276749ce646f68ac8c248420045cb7b7b Cat C contract address: 0x495f947276749ce646f68ac8c248420045cb7b5c
Well-known projects using the ERC-721 protocol include ENS, Sandbox’s LANDs, RTFKT, etc.
Since ERC-721 requires a separate contract for each token/collection, it is relatively complicated both in terms of production process and on-chain space, and limits the implementation of some functions. Therefore, a new optimization plan was proposed in June of the same year, which is ERC-1155 that we will continue to talk about below.
ERC-1155（Multi Token Standard ）
The ERC-1155 Multi Token Standard was proposed in June 2018. The previous ERC-20 required a separate contract to be deployed for each token type. The token ID of the ERC-721 standard is a single non-fungible index, and these non-fungible groups are deployed as a single contract with the entire set of settings.
In contrast, the ERC-1155 multi-token standard allows each token ID to represent a new configurable token type that may have its own metadata, supply, and other properties. Through the ERC-1155 protocol, we can represent an interface for any number of fungible and non-fungible token types. The _id parameter included in the parameter set of each function indicates the specific token or token type in the transaction. And contracts that can track multiple token balances and ownership to improve the efficiency of batch transfers.
ERC-1155 eliminates the need to individually “approve” individual token contracts, making it possible to describe and mix multiple fungible or non-fungible token types in a single contract and transfer multiple token categories at once, saving both on-chain space and transaction costs.
Tokens issued based on ERC-1155 usually have the following characteristics:
Non-homogeneous
ERC-1155 is a smart contract interface that represents fungible, semi-fungible, and non-fungible tokens.
ERC-1155 can perform the functions of both ERC-20 and ERC-721, or even perform the functions of both at the same time.
Each token can represent a different value depending on the nature of the token; fungible, semi-fungible or non-fungible.
for example:
When Cheese made three cat photos taken today into three NFTs according to the ERC-1155 protocol, the contract addresses of these three NFTs are the same, but the IDs behind them are different. Cat A contract address: 0x1542b05412dfecd80e734929f9087f8766934275/1 Cat B contract address: 0x1542b05412dfecd80e734929f9087f8766934275/2 Cat C contract address: 0x1542b05412dfecd80e734929f9087f8766934275/3 The number after the contract address/is the ID. Each id parameter represents a specific token or token type in the series of tokens.
Since ERC-1155 is more widely used than ERC-721, many other applications such as GameFi, artworks, etc. can benefit from this flexibility.
例如：OpenSea、RTFKT Clone X ForgingSZN1、Sandbox’s ASSETs (ASSET)、Town Star、Rarible等。
ERC-3525（Semi-Fungible Token）
ERC-3525, also known as Semi-Fungible Token, was proposed in December 2020 and officially launched in September 2021. It appeared against the background that tokenization has become one of the most important trends in the use and control of digital assets in the crypto world.
Traditionally, there are two ways to do this: fungible and non-fungible tokens. Fungible tokens usually use the ERC-20 standard, where each unit of an asset is identical to each other. ERC-20 is a flexible and efficient way to manipulate fungible tokens. Non-fungible tokens are mainly ERC-721 tokens, a standard that can distinguish digital assets based on identity.
However, both have obvious disadvantages. For example, ERC-20 requires users to create a separate ERC-20 contract for each separate data structure or combination of customizable properties. In practice, this will result in the need to create a large number of ERC-20 contracts, which is the code redundancy we mentioned above;
On the other hand, ERC-721 tokens cannot provide quantitative features, which seriously weakens the computability, liquidity and manageability of the series of tokens under this standard. For example, if you want to use ERC-721 to create financial instruments such as bonds, insurance policies or vesting plans, there is no standard interface for us to use to control the value in them, such as it is impossible to transfer part of the equity in the contract represented by the token.
One of the most efficient ways to solve the above problems is to create a semi-fungible token that has both the quantitative characteristics of ERC-20 and the qualitative attributes of ERC-721. This is the background for the birth of ERC-3525.
In theory, ERC-3525 is also an NFT that supports a single token and can be split, merged, and partially transferred based on it. In order to better support the "two-layer asset" model, ERC-3525 also adds the underlying asset description function at the protocol layer to support and standardize the implementation of the token. In addition, in order to interact effectively with the existing DeFi infrastructure, ERC-3525 is compatible with ERC-721 at the implementation level, so any protocol that supports standard ERC-721 can also handle ERC-3525.
The backward compatibility of semi-fungible tokens based on the ERC-3525 standard with ERC-721 will help leverage existing infrastructure that is already in use. Although 3525 is not yet technically mature, its future value is very worth looking forward to. It can be used to build a variety of innovative financial assets, such as mortgage securities, fund shares, insurance contracts, contracts, futures, options, bonds, exchange notes, deposit certificates, etc. These tokens can be easily calculated, merged, and split, just like fungible tokens with flexibility.
In terms of practical applications, Solv Protocol has launched a bond product based on ERC-3525 in their financial NFT market. The product is still very new, and I am still studying and researching this area. If you are interested in ERC-3525, you can also do some homework to learn more about it.
ERC-4907（Rental NFT, an Extension of EIP-721）
ERC-4907 is also an extension of ERC-721, which mainly sets a unified standard for the behavior of NFT "leasing", thereby promoting collaboration between various applications.
ERC-4907 was proposed in March 2022. In some scenarios, the owner and user of an NFT may not always be the same. For example, the owner of an NFT may rent it to a certain "user". The "user" has different permissions to the NFT than the "owner" and only has certain usage rights. In these cases, it makes sense to have separate roles to identify whether the address represents an "owner" or a "user" and manage permissions to perform operations accordingly.
This scenario can be implemented in games, finance, social applications and other fields.
The Development of NFT
The evolution of the ERC tokens we talked about earlier fully reflects that people’s exploration of the crypto world is no longer satisfied with homogeneous tokens.
After nearly four years of development, NFT has become more diverse in its application scenarios, and people have begun to explore NFT applications other than PFP and artworks. Giving these NFTs practical value, financial NFT products that can help people more flexibly handle asset digitization and related financial derivative operations will undoubtedly become a new market segment and growth point with great potential in the industry.
The author of this article: Sunny, a senior mobile Internet marketer with 5 years of experience in the blockchain industry, Founder of BlockchainCheese, focuses on new developments and trends in the blockchain industry, crypto marketing and crypto user growth.
