If you’ve ever looked at the NFT space, you would know that it could get really expensive. This is especially true for blue chip NFTs, such as Bored Ape Yatch Club (BAYC). For example, the cheapest BAYC today costs 68 $ETH, which is well over USD$100,000.
Indeed, the NFT space could be too costly for many users to partake in. Therefore, a novel solution to resolve this lies in NFT renting. Yet, the current token standard for NFTs (ERC-721) is not adept for such a use case. Today, we review a promising solution for this problem – the ERC-4907 token standard.
What Is NFT Renting?
Despite NFTs only having their first boom in early 2021, NFT renting was already high in demand. This is because of 3 main reasons:
- NFTs are very expensive: So, many users cannot afford them. Costs are also increased with high gas prices on Ethereum.
- Users cannot decide if they want the NFT: Usually, users would want to try out the product first before buying the NFT. For instance, Axie Infinity’s scholarship program allows users to rent Axies from lenders to play the game. This increased the amount of Axie players as many did not need to buy Axies to start playing.
- Users just need the NFT for a short period: For example, let’s say you’re a big fan of Coachella. You’d love to attend their on-stage event, but you need an NFT, like those shown in the tweet below, to do so. You could choose to rent the NFT from a lender only for the period, just to attend said event.
Introducing Coachella Collectibles NFTs 🎡 Lifetime festival passes, digital collectibles redeemable for physical items & more available Friday at 10am PT at https://t.co/D8v4cD04wc
Explore our debut collections👇 pic.twitter.com/eEPdVvxPhg
— Coachella (@coachella) February 1, 2022
Moreover, NFT renting spans beyond Axies and concert passes. It has a strong impact on many on-chain games, metaverses, digital art, and real-life businesses as well. To put it simply, NFT renting lowers the barriers of entry to all projects that adopt it. In turn, this leads to greater adoption.
Problems With NFT Renting
Despite its strong use case, NFT renting is not yet optimal for mass adoption. Here is why:
- The on-chain rental experience is poor: Many lenders who rent out their NFTs need to reclaim them from renters after the expiry of the lease. This leads to increased gas costs and effort. Also, lenders may even forget to reclaim their NFTs.
- Collateral is required for NFT renting: To protect the NFT lender, users need to place collateral to rent. This amount usually exceeds the value of the NFT itself. With this, many potential NFT users are put off renting. Imagine if you wanted to rent a BAYC, you’d need more than USD$100,000 of collateral. Makes no sense right?
- Lack of liquidity in the NFT renting market: Due to the 2 reasons above, many NFT users are not encouraged to lend or rent. There is also a lack of protocols built for the NFT renting ecosystem.
To solve the above problems, the ERC-4907 token standard was born.
The Solution to the NFT Renting Sector is the ERC-4907 Token Standard
The ERC-4907 is a new NFT rental standard. It was put forth by Double Protocol as a proposal and approved by the Ethereum development team. ERC-4907 adopts a dual role for “owner” and “user” at the application layer.
It also defines an “expires” function for the “user” of the NFT, while renting from the “owner”. If you’d like to read more on ERC-4907, you can look at the tweet below.
Renting and lending NFTs is easier than ever with the dual-role and expiration features of the new ERC-4907 standard. This unlocks exciting possibilities that benefit everyone in the #NFT space! 🤯
— Ancient8 (@Ancient8_gg) August 5, 2022
So, what does this improvement do for NFT users like you or me? Let’s break it down.
- ERC-4907 defines clear rights assignments: This is between the NFT lender and NFT renters. With ERC-4907, “owners” and “users” have their rights and renting period clearly defined. This improves safety for the NFT lender. Also, this works very well for projects facilitating NFT rentals, they have a set of clear guidelines to work with.
- ERC-4907 implements on-chain time management: Now, NFT lenders do not have to execute a second on-chain transaction to claim their NFT. With the “expires” function, the NFT renter’s rights automatically expire after the rental period. This reduces effort and costs for the NFT lender. In turn, this incentivizes lending and improves liquidity in the NFT renting market.
- ERC-4907 improves the integration of NFTs on Ethereum: All ERC-4907 NFTs are compatible with the current ERC-721 NFT standard. In addition, ERC-4907 provides a set of guidelines for all projects to follow. With a stronger foundation for ERC-4907 token developers to adopt, projects incur fewer costs as well.
- ERC-4907 removes the need for collateralization when renting NFTs: NFT renters cannot transfer the NFT, nor alter the rental period. In turn, this reduces the costs of NFT renting.
The new NFT standard, ERC-4907, will allow NFTs to be rented.
First, it switches the rights of NFT owners and users for a period of time. At the end of the lease, the token returns to the OG owner. ❤️
Imagine if u could rent your microverse ship, jetpack, gold shoes, studio—yo! pic.twitter.com/nCEoWAwsZD
— Pablo Stanley (@pablostanley) August 12, 2022
With the above 4 benefits, ERC-4907 proves to be a game changer. Furthermore, by improving the NFT renting experience, NFT liquidity increases. Therefore, more protocols will be encouraged to build on the NFT space. This creates a positive feedback loop, which grows the NFT ecosystem.
Finally, for users like you and me, more NFTs are within our reach. As NFT lenders, we enjoy greater utility on our assets by renting them out for profit. As NFT renters, we’re able to rent NFTs to enjoy on-chain experiences, which could be too costly in the past.
Sadly, ERC-4907 has not yet been deployed on Ethereum. However, its launch will inevitably push the NFT space forward.
⬆️Moreover, for more cryptocurrency news, check out the Altcoin Buzz YouTube channel.
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