TL;DR
The newly launched option of granting NFTs their own ‘token bound accounts’ has the potential of moving NFTs from ‘overpriced jpegs’ to on-chain agents. When NFTs can own things and transact themselves, they’re freed from the shackles of being moved around as tokens. You can already deploy the token bound account for any NFT you own. The ecosystem is expected to evolve rapidly in the coming months.
The idea is simple. What if NFTs… had their own wallets? Enter: Token Bound Accounts. These are smart contract wallets tailor-made for NFTs. Meaning that NFTs can then own ETH or other ERC-20 tokens and NFTs. Wait, so if an NFT can own an NFT, which can own an NFT, which can… yes, we are reminded of the Russian dolls.
Ethereum standard ERC-6551, titled “Non-fungible Token Bound Accounts,” went live on Ethereum mainnet in early May 2023. It can give each NFT a smart contract account.
Refresher: a smart contract account or smart account doesn’t require the storage of private keys. It doesn’t rely on the account holder to manually approve each transaction. Instead, the account can be customized and automated using code. That’s why smart accounts offer options such as automated regular payments, revenue sharing, and a host of other financial use cases that go beyond just sending a transaction.
Unveiled Last March
Unveiled at ETH Denver only last March, token bound accounts are making waves. It already works with existing apps such as MetaMask.
Picture this (or should I say: jpeg this – sorry). You will be able to subscribe to a service and do regular payments on behalf of let’s say your Crypto Punk or Mfer! Your Bored Ape could own a Punk and post this as collateral on Blur to get out a loan!
This is all explained in detail by one of the creators Benny Giang in this talk. The maker was inspired by Soul Bound Tokens (SBTs) and the idea is the inverse. Instead of an NFT bounded to a wallet, these are wallets bounded to NFTs: Token Bound Accounts (TBAs). Each token bound account is owned by a single ERC-721 token (NFT). It allows the NFT to interact with the blockchain, record a transaction history, and own on-chain assets.
The Problem With the Current State of NFTs
NFTs on Ethereum (ERC-721 tokens) have a limitation: they don’t have agency. They don’t own things, they have no transaction history.
Now envision NFTs with tokenbound accounts. Let’s say an in-game character NFT accumulates assets and abilities over time. No longer a static jpeg!
Of course, the control of each token bound account is delegated to you, the owner of the ERC-721 token. You can initiate on-chain actions on behalf of your NFT.
Why would you want such a thing? I already gave the example of gaming. But think for a second about profile pictures NFTs. For example @punk6529, the pseudonymous crypto analyst who expresses his views on the future of the metaverse. Would it not make much more sense if the owner of this Crypto Punk could also put ‘his money where his mouth is’? In other words, that the punk #6529 could express its beliefs by owning assets such as ETH and NFTs itself? After all, transacting is a form of expressing values.
Until now, NFTs were passive. In a sense, they were slaves that were…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
