Double Protocol NFT Leasing: How the New NFT Token Standard is Opening Up the Next Generation Rental Market

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Main Content

• The Ethereum token standard "ERC-4907" became "Final" at the end of June, opening up the potential for rentable NFTs.
• Once implemented in smart contracts, rentable NFTs can drive the development of blockchain-based games, metaverse land sales, and more.

In late June, a new Ethereum token standard called "ERC-4907" achieved the "Final" status; this standard will allow users to lend out their non-fungible tokens (NFTs).

"ERC-4907" introduces a new role in the NFT standard by separating ownership and usage rights of NFTs—making "renting" possible. Renters can use the NFT until the rental period expires, after which the NFT will automatically return to its owner.

Prior to "ERC-4907," every time you transferred an NFT, you would lose ownership, said Lareina, developer of "Double Protocol" (a startup building infrastructure for rentable NFTs and also the developer of the new token standard). But by splitting ownership and usage rights, NFTs under the "ERC-4907" standard can be lent out and rented in a permissionless manner.

Rentable NFTs were not formally available before. Achieving the "Final" status means Ethereum proposals, or projects aimed at improving the Ethereum blockchain, can no longer be updated. Other builders can now incorporate the proposal into smart contracts without worrying that developers will change it later.

Once built into smart contracts, rentable NFTs have the potential to disrupt blockchain games, metaverse land sales, blockchain-based media platforms, and more.

How to Create Rentable NFTs

Most well-known NFT projects like Bored Ape Yacht Club, CryptoPunks, and Azuki are minted or packaged using the "ERC-721" token standard, representing ownership of digital or physical assets that can be verified on the Ethereum blockchain.

These token standards stipulate that NFT owners can use the digital assets. For example, to use the token Axie #5 in the play-to-earn game Axie Infinity, you must have that NFT in your wallet. To have the NFT in your wallet, you must either mint the Axie or purchase it on the secondary market.

In other words, purchasing the Axie is the basis for being able to use it—just like other NFTs minted under the "ERC-721" standard.

NFTs minted under the "ERC-4907" token standard split ownership and usage rights of digital assets. The "ERC-4907" token standard can be wrapped around existing NFTs minted under the "ERC-721" or other Ethereum standards, allowing wrapped NFTs to be read by smart contracts in the rentable NFT market and borrowed or rented—just as if it was originally minted under the "ERC-4907" standard.

Furthermore, owners can set time parameters to determine how long renters can use their rented NFTs. When the time expires, users can no longer use the NFT, and the rented NFT will return to the original owner—without the owner needing to manually request the return of their assets.

Use Cases and Future Prospects of Rentable NFTs

Sharing usage rights of NFTs is not new. Game guilds purchase NFTs that are too expensive for most players and lend them out in exchange for a portion of the players' profits. Guilds like Yield Guild Games (YGG) emerged alongside Axie Infinity last summer and fall, when the game's popularity was at its peak.

"There's a lot of risk when you transfer rights to a guild," Shrug Newton, builder at Double Protocol, told The Block in an interview. "You have to trust the guild. If the guild disappears, then you lose your assets."

However, "ERC-4907" allows users to manually create guilds with valuable NFTs they own, where lenders can collect rental fees and users can retain profits from the game by utilizing Ethereum smart contracts in a trustless and permissionless manner, says Lareina.

While this may seem like a threat to guild business models, Double Protocol believes blockchain-based game guilds can become market makers for rentable NFTs—trading securities and often serving as entities providing liquidity. Mature guild organizations like YGG can leverage "ERC-4907" to make their guilds more decentralized.

Lareina added that Double Protocol sees game guilds as major stakeholders in the rentable NFT market and aims to cater to them as much as possible. This may include creating tools that allow guilds to create new guilds with the click of a button and control the distribution of game revenue between lenders and renters.

Aside from games, rentable NFTs can also enhance the use of metaverse land. Lareina pointed out that landowners in the metaverse can share their properties