Non-fungible tokens, or NFTs, are unique and indivisible tokens that can represent ownership of a digital asset in a decentralized manner. They are a ground-breaking internet invention due to their intrinsic resistance to counterfeiting and the openness of the transaction procedure.
Proposed in January 2018, the ERC-721 introduced a standard for NFT which has formed a building block for every other NFT standard. Since coming into the limelight, the innovations that have rallied behind NFTs are evidence of the cutting-edge nature native to the cryptocurrency market. NFTs are not entirely a new kind of asset class, but their current resurgence in popularity has sparked a revolution in digital art.
As the digital world continues to embrace more innovation, NFT rentals are fast becoming a prominent part of this space with the emergence of ERC-4907 created to provide a rental infrastructure for NFT. The ERC-721 token standard has also formed the building block for ERC-4907 to deliver a rental infrastructure — similar to an engine block for deploying NFT rental.
Why Rent NFTs?
Oftentimes, people are unable to engage with a play-to-earn game due to the cost of purchasing the in-game NFT asset needed to play. While other people who wish to become a member of a particular NFT community may not be able to do so due to the cost implications. NFT rental presents a powerful gateway to such groups of people.
At the industry level, one of the core reasons for embracing NFT rental is that it increases the liquidity of NFTs across the board and lowers the barrier to entry. When compared to fungible tokens, NFTs are less liquid — implying that an owner in need of urgent cash may not be able to readily sell or liquidate his NFT assets without slashing their value.
The illiquid nature of NFTs could be attributed to the high cost of most popular NFTs that has gone mainstream which raises the barrier, enabling only a small class of buyers to be able to afford them. Since the cost of renting an NFT for a given period of time may be far less than the cost of purchasing it; this barrier has been lifted.
Suppose only a minority of the crypto market participants are able to afford to buy a Decentraland LAND NFT. With the availability of NFT rental, many, many more may be able to gain access to using those NFTs. More market participants imply more liquidity — an affordable price tag lowers the barrier to entry.
How ERC-4907 Makes NFT Rental Possible
As with every rental service, there exists an owner of the property and the user (renter). The owner has the full right to do whatsoever he wishes to do with the properties (to sell, destroy or rent them out), and the user is confined to a predefined usage right that does not permit such a user to sell or transfer.
ERC-4907 is an extension to the ERC-721 standard with a Dual-Role and expiration features that is key to NFT rental integration. ERC-4907’s Dual-Role function separates the owner's role from the user's role. The NFT owner can transfer, sell, rent, or even destroy the NFT if he so wishes. In contrast, the user can only use the NFT (build on it, engage in NFT games, etc).
The deployment of ERC-4907 on rental protocols enables a non-collateral renting model in which the renter doesn't need to put up collateral upfront before renting the property. This is opposed to transferring the ownership from the lender to the renter with the condition that the renter pays an agreed amount of collateral. The problem with such rental operations is that the renter may decide not to return the rented NFT if the price increases more than the value of the collateral paid. ERC-4907 ultimately put to rest most of the problems and disputes that could arise in collateral-based protocols.
In addition to the Dual-Role, ERC-4907 adds the function expires() which is quite unique. This function effectively defines the rental period — the rented NFT will automatically expire at the end of the set period without the need for an additional on-chain transaction by the user (renter). This feature averts the user from spending additional transaction fees on the network.
Dual-Roles in ERC-4907 present the best architectural framework which makes it seamless to integrate and manage by developers. Not only is it the easiest to implement, but it is also the most secure.
Demonstrating how ERC-4907 Works on DOUBLE
- An asset owner who goes by the name Billy approves the rental contract through a rental protocol to grant permission to transfer the NFT he owns onto it.
- When Bill lists on Double, at the same tx, he also transferred the NFT to the rental contract — specifying the rent fee, max rental period, etc.
- A renter called Mary selects a lease period within the time frame Billy has specified, the rent is calculated according to the lease time and rental price.
- Mary transfer ETH, BNB, or any other supported tokens as a rental fee, the rental contract sets the user of the NFT to Mary, and also set the expiration period by the lease time.
- When the lease expires, Mary loses access to the right to use the NFT and Billy can redeem it from the rental contract.
Key Reactions from the Industry
Although ERC-4907 was created by the team behind the NFT financialization platform Double Protocol, the standard is entirely a public good that could be adopted by any rental protocols and deployed by anyone. However, Double Protocol has maintained fast-paced development, ranking among the first few rental platforms to become fully functional, and has also become the de-facto rental protocol whenever ERC-4907 is mentioned.
Since ERC-4907 reached the final status, the highly recognized NFT rental standard has received considerable attention from various crypto media and the entire industry — thanks to its unique rental approach. Crypto-native media The Block was the first to broadcast the final status of ERC-4907 outlining its use case in the metaverse and the gaming space.
A close look at the number of ERC-4907 integrations in the first week since the token standard became final, it seems like a lot of rental protocols and crypto gaming projects have been patiently waiting for it to be approved. Notable among several early integrations is PlayerOne, a Metaverse project who announced the adoption of the ERC-4907 NFT standard for their Metaverse parcel rentable system followed by Rilascio NFT Rental Protocol ****which published technical documentation for the implementation of the standard on its rental protocol.
A more expanded and broad technical documentation was also published by decentralized blockchain infrastructure provider Ankr, the piece took a deep dive into the implementation of the ERC-4907 rental standard on Ethereum’s Layer 2 blockchain Optimism and how the standard could revamp the NFT space. Ankr demonstrated how this standard is not only a game changer for Ethereum-based NFTs but also for other Layer 2 blockchains.
Elsewhere, ERC-4907 has received several reactions from the Crypto Twitter community. A web3-focused firm thirdweb took to Twitter to dig into several powerful new NFT use cases engineered by ERC-4907, as noted in a series of tweets.
“People often want to access the utility of certain NFTs without making the commitment to purchase them. 'Renting' NFTs lets people pay a fraction of the price to hold the NFT in their wallet temporarily, using the NFT to unlock utility or digital experiences.”
thirdweb believes that the expires function in ERC-4907 is a powerful innovative feature that will “greatly reduce the integration cost of utility NFT rentals.”
Although the use-cases for ERC-4907 are primarily focused on the deployment of NFT rental, one Twitter user Eric Nemeth seems to be looking at its applications from another perspective — a potential use case in DeFi products and services. Eric believes that ERC-4907 has a potential use case in the DeFi sector especially in enforcing agreements between two parties who wish to exchange cash flows in the future.
Another revolutionary area ERC-4907 is finding interesting use cases is in the adoption of POAP (Proof of Attendance Protocol). This is already possible as portrayed in a tweet from WhaleShark.eth, “We are relaunching our legendary Project Showcase programming from Episode 1 to reflect the launch of our POAPs…” Ideally, POAPs are unique NFT badges given out to attendees of either virtual or real-world events. It proves beyond doubt the validity of anyone’s membership or participation in an event, summit, concert or conference, etc.
In another tweet, WhaleShark.eth ranks ERC-4907 among the list of 4 key areas/infrastructures capable of leading the next NFT bull run. Unarguably, NFT rental powered by ERC-4907 will be crucial in sustaining the next waves of NFT adoption.
The Bottom Line
With increased access to NFTs made possible via NFT rental, users can seamlessly gain entrance into the Web 3.0 economy. The key factor driving users to consider renting NFTs is tied to utility NFTs. While more people look to build business models on NFTs assets, engage in gameplay, or leverage other NFT use cases, ERC-4907 presents seamless implementation tools for developers to leverage in order to unlock these use cases.
ERC-4907 provides cutting-edge features whose use cases could extend beyond NFTs — finding intriguing applications in the implementation of DeFi Protocols. It is believed that the continued adoption of NFT rental will fuel astronomical growth in the NFT sector.
