What is ERC-6551: The most important innovation for NFTs after ERC-721

What is ERC-6551?

Launched on the mainnet on May 7, 2023, ERC-6551 is a unique Ethereum standard. It's important to note that it's not a token format standard like ERC-20 or ERC-721. Instead, ERC-6551 allows each NFT to function like a "wallet". Just like a standard Metamask account, these NFTs can hold assets and engage in on-chain interactions.

Specifically, this is achieved by deploying an interaction interface of Contract Account (CA) for every ERC-721 format NFT, along with an unpermissioned registry for these accounts. This enables NFTs to have the attributes of a cryptocurrency wallet while still maintaining compatibility with the existing ERC-721 contracts. This novel concept of an "NFT wallet" is referred to as "Token Bound Accounts (TBA)".

One of the key features of this standard is that it doesn't require any changes to the original ERC-721 contracts or any transactions made by the owners.

This update was proposed by Future Primitive. As explained by Benny Giang, a member of the studio, a Token Bound Account is the opposite of a Soulbound Token (SBT). This means each NFT is permanently linked to a specific account/wallet. Moreover, there's no limit to the number of TBAs a single NFT can bind to. In other words, one NFT can be tied to multiple accounts/wallets through ERC-6551.

A Soulbound Token is a unique kind of digital token that represents one's social identity in a decentralized society. Unlike typical cryptocurrencies or NFTs, these tokens can't be bought, sold, or transferred and don't have market value. Instead, they serve as a verifiable record of social connections, achievements, and outcomes, similar to an extended resume.

For more information on Soulbound Tokens, refer to TokenWiki: What is Soulbound Token

Currently, you can deploy your own TBA and interact with others through Tokenbound, an initiative launched by the Future Primitive team.

Benefits Brought by ERC-6551

Bye-Bye Easy Copycats

ERC-6551 addresses, to a certain extent, the previous criticism of NFTs being easily replicable "lil-pics". While the style and design of an image can be copied, cloning its on-chain assets and historical interaction data is much harder.

This reduction in replicability is achieved through enhanced composability. In practical applications, when an NFT with a TBA is transferred, all the assets integrated with it (like ETH, USDT, other NFTs, etc.) are automatically transferred to the new NFT holder.

Enabling On-chain Interactions for NFTs

ERC-6551 allows ERC-721 NFTs to have on-chain interactions. Until now, NFTs couldn't directly interact with other on-chain assets or DApps, which significantly limited their functional and value potential. With the introduction of TBA, an NFT is not just a "proof of ownership" anymore, it now has broader application scenarios and increased value growth potential.

Endowing NFTs with "Individual Identities"

By binding with a TBA, NFTs are endowed with a unique "individual identity".

They're no longer solely dependent on the wallet that holds them or simply an image owned by an account. Instead, they become "market participants" that can own on-chain assets (including other NFTs), engage in on-chain interactions, and record transaction histories. This concept of "individuality" means that many designs based on "Web 3.0 identity" can be realized.

Moreover, with the introduction of TBA, each NFT can have its unique story. Its value is no longer solely dependent on the designer or owner, nor is it reliant on "speculation and off-chain activities". From this perspective, sectors like GameFi and SocialFi might be poised for fresh growth opportunities.

Current Development Bottlenecks of ERC-6551

Based on real-time data, there are currently a total of 7,152 TBA accounts on all EVM-compatible networks (Source: Dune@sealaunch). This raises a question: Why has ERC-6551, which seemingly has so much potential, only resulted in the creation of just over 7,000 accounts in the three months since its launch?

While we must acknowledge the broader market conditions and the current lull in the NFT space as contributing factors, there are also inherent limitations specific to ERC-6551:

• Limited NFT Project Support of ERC-6551

Not all NFT projects are supported.

At present, this standard supports only ERC-721 format NFTs. This means other formats, such as ERC-1155, are not compatible with the ERC-6551 standard. This restricted compatibility may prevent ERC-6551 from gaining widespread acceptance, leading to a less vibrant ecosystem.

• Lack of Compelling Incentives

In essence, so far, ERC-6551 hasn't provided a compelling reason for project developers to design their NFTs specifically based on this standard. This stems from two realities: Some features are achievable without necessarily using ERC-6551, and certain capabilities might not be crucial for everyone.

On one hand, benefits like "composability" and "enabling on-chain interactions", which we mentioned earlier, are not exclusive to ERC-6551. These are fundamental functionalities that contract accounts inherently possess.

On the other hand, from the standpoint of current common applications, bundling NFTs and related assets might not be particularly necessary. While packaging them can reduce the total Gas fee from a practical perspective, it's worth considering that not many users make frequent, large-scale trades of these "bulk goods".