Article contributed by Ishan Shahzad. Follow them on Medium here.
ERC-4907, allows an NFT owner to permit another individual to use their NFT for a designated period of time. After that time ends, the user no longer has access to the NFT.
Play-to-earn (P2E) video games are still a relatively new phenomenon in both crypto and gaming. Having said that, the industry has enormous growth potential due to its powerful combination of two things that everyone desires: entertainment and money.
With the ongoing rise of NFT rental services, entry into the P2E space has become even easier. They allow players to rent an NFT, no virtual strings attached, and pay lenders a cut of whatever earnings they generate. Owners of non-fungibles, in turn, get a chance to generate additional passive income.
First, we’ll go through the basic overview of NFTs for beginners. Let’s go ahead.
What Are NFTs
NFTs, or non-fungible tokens, are special cryptocurrencies where each token represents ownership of some “thing” that is unique (“non-fungible”). An NFT is a unique digital asset that is not directly replaceable with another digital asset. Many physical assets are also non-fungible. Real estate, for example, is non-fungible since each piece of property is unique from the others.
If you want to know more about NFTs, read my previous story here.
NFTs are one of the most interesting things to have happened around digital ownership and the creator economy. They have opened a whole new world of possibilities for artists and developers alike.
NFTs
A Growing Trend in Utility-Focused NFTs
The economy and technology are powering the rise of real-life use cases. They are constantly improving and supporting the development of new and innovative products and services. The increasing number of utility-focused applications drives the evolution of the NFT market.
The rapid emergence and evolution of the play-to-earn and metaverse games has helped the NFT market grow. The increasing number of real-life use cases and ownership opportunities for NFTs are expected to drive the market’s upward trajectory over the next few years. As a result, the rental marketplaces focused on this space are likely to play a vital role in the evolution of the NFT market.
What are NFT Rentals
NFT Rentals works the same way, as any other rentals work in the real world. Suppose you want to have a luxury car, temporarily for some days. Instead of buying a new car, the best cost-efficient way is to rent the car for the required number of days and return back to the owner without fail, once your period is complete. Similarly, the idea is to rent an NFT temporarily for some days and return back to the rightful owner once your renting period is complete.
NFT Rental
Why NFT Renting Is Important
NFTs can have a wide variety of utilities, and there are a great many benefits of NFT renting.
NFT rentals benefit both owners and renters. For the renter, it opens an opportunity to join the NFT community or take advantage of an NFT’s utility they otherwise wouldn’t be able to afford, even if only for a short period of time. The owner gets to monetize their NFT, earning passive income on an illiquid asset that might otherwise sit unused in their digital wallets, collecting virtual dust. Within the gaming space, these benefits of NFTs rental is clearly a win-win for high-net-worth gamers and regular players.
The potential for NFT rentals is massive. Digital art, metaverse land, and all sorts of game assets can all be rented. The NFT rental market will thrive with the large-scale adoption of blockchain games, guilds, and metaverse in the coming years. This will result in large amounts of idle NFTs held by users, guilds, and projects. Therefore, it is crucial to support an active rental market to bring down the cost of participation and reward existing users’ engagement through rental income.
Current Methods Of NFT Rentals
There are currently two ways by which NFTs can be rented out:
- Collateralized Renting
- Collateral-free Renting
In both methods, the owner will transfer ownership of the NFT to the user with some collateral or conditions to ensure that the renter will return ownership after the rental period is complete. Once the NFT is rented out, the original owner has no control over it, which creates many potential risks. Additionally, when the rental period expires, the owner has to manually reclaim their asset which is a complicated and expensive process, especially when renting multiple assets at the same time.
Thanks to the introduction of ERC-4907, the roles of owner and renter are now separated with an expiration date, which means the leaseholder’s privileges expire automatically without any further on-chain operations.
The Dual Role NFT Rental Standard (ERC-4907)
ERC-4907 adds a new role to the NFT standard, dividing who is the owner and who is the user of the NFT — making it possible to “rent”. The tenant can use the NFT till the loan term ends, automatically passing the NFT back to its owner.
The ERC-4907 standard is an extension of ERC-721 that introduces the dual roles of ‘owner’ and ‘user’ at its application layer. ERC-4907 streamlines NFT rentals through an automated ‘expires’ function which enforces the time-limited role of the user. This innovative feature makes NFTs rentable by default; owners no longer have to manually withdraw user rights, eliminating a tedious process and another on-chain transaction.
ERC-4907 is easily implemented by adding just a few lines of code. Adopting this model as the standard for NFTs may accelerate further innovation and growth of the NFT ecosystem.
Renting Process
The Protocol Offers:
- Simple implementation: Easy to implement and provides Backwards Compatibility.
- Roles to NFT: With Dual “owner” and “user” roles, it becomes significantly easier to manage what lenders and borrowers can and cannot do with the NFT.
- On-chain time management (expires): The “user” of NFT is revoked automatically after the renting duration is over.
- Easy Third-Party Integration: The owner of NFT now can rent the NFT to some users and at the same time use the NFT in a mortgage platform. Renting uses the “user” role, while mortgage uses the “owner” role of the NFT.
- Making NFT more accessible: Renting an ERC-4907 NFT does not require OC nor any collateral at all, as renters are allowed to use the NFT but cannot transfer it nor change its user-ship, which is automatically revoked upon expiration. This opens up more opportunities for users to rent NFTs and make use of them.
- Increasing market liquidity: As The Metaverse and Web3 continue to expand, more and more people, including those who cannot afford or simply don’t want to buy in-game assets or virtual land, will opt for renting NFTs instead to access their benefits. This will greatly increase NFT market liquidity over time.
Where Can You Rent NFTs
The market for NFT rentals is still relatively small. That is why there aren’t many NFT rental marketplaces yet. The most popular ones are reNFT, Vera and Trava NFT.
Wrap Up
We went over the NFT Rental Standard ERC-4907 and how it works and why the renting system. ERC-4907 is an important standard that eliminates the need for collateral in lending and borrowing NFTs. If it is widely adopted as the standard for NFT creation and programming, it will unlock safer and more lucrative possibilities for NFT owners, buyers, marketplaces, and artists.
