Poor Quasimodo of NFTs: ERC-998
There is an NFT standard with a substantial utility that is mentioned from time to time but has not been used as much as it deserves since its publication in 2018: ERC-998. I call this standard Quasimodo of the NFTs because Quasimodo, the name of the main protagonist of the famous novel Notre-Dame de Paris, means “incomplete man” in Latin and I feel the same sadness of love and mercy while looking at both Quasimodo & 998. Maybe I could have also titled this article “Requiem for a Standard”. Feel free to cry.
ERC-998 is actually an extension of the most common NFT standard, ERC-721, which has the ability to own both fungible and non-fungible tokens. This means that an ERC-998 token can represent multiple NFTs and ERC20 tokens, and you can transfer multiple assets with a single ERC-998 token transfer (on the surface). For ease of understanding, you can think of this asset as a wallet that you can deposit or withdraw your assets, and you can transfer or sell it entirely. With this standard, joint portfolios can be created, fractionalized and shared within an “investor community” (This utility reminds me the promises of the brand new Fragments project, but their mechanism is not like this). Or in an NFT game or Metaverse, items such as weapons or clothes can be embedded in a single character NFT and sold together (like Dynamic NFTs but with a different mechanism).
There are actually a few projects built with this standard. For example, CeasersTriumph is a P2E game project built on ERC-998. Mokens is another project provides a creator ecosystem where you can collect, showcase and sell your NFTs with ERC-998 tokens. Lastly, Bitguild is a gamer focused decentralized platform that also benefits from ERC-988. But all of these projects have one thing in common: They have all shut down or are currently inactive. Why is that? Why did these companies, some of which are well funded (Bitguild raised $20M in its ICO in 2018), fail to succeed despite their early investment in such a high-potential technology and utility?
Of course, there are many project-specific answers to this question, I haven’t analyzed these companies one by one, but as far as I can tell, one of the important mistakes they made was trying to build their projects on a technology that has potential but the developer ecosystem is not yet mature. Yes, the idea of ERC-998 sounds great, it may have many use cases and the potential is high. However, if you review the developer comments, you can see that the standard proposal (EIP-998) has not received enough attention and has been standing still for years. The reason for this was actually about the possible complexities that I had not thought of before, which would be encountered in the development process and daily life use.
Without a doubt, one of the most important issues in smart contracts is gas efficiency. Even if a contract solves a crucial problem as perfectly as desired, if it cannot complete transactions in a gas-efficient way, it becomes impossible for the standard user to benefit from it. In the current ERC-998, there is a clear efficiency problem due to the main utility of the contract. Normally, a single token transfer can be handled by using only the address and the amount information (I’m simplifying a bit). However, for an ERC-998 NFT owns multiple tokens, this process will be much more complex because for each token owned by the NFT, the transaction will need separate token, address and amount information and cross-checks for on-time availability. Which means high gas fees.
Another problem is the tree structure of the standard. Since ERC-998 is a meta-contract, it has to be managed with a branched organization scheme. In order to ensure efficient usability within this tree structure, operations such as moving an asset from one branch to another need to be defined. In other words, a child-parent hierarchy is created between contracts under the meta-contract. I think it is obvious how much this structure, which I have difficulty in expressing briefly, can increase the complexity both in development and in use.
As far as I can see, these two main problems have been a headache for a small number of developers for a long time. Of course, none of these problems are unsolvable, they just require more effort and attention. Presumably, the big players in the industry have not yet focused on the opportunities that could arise from this standard and the field has remained deserted. So, this chicken-egg problem in ERC-998 consisting of money, community interest and development has not been solved for years. I do not know whether a new standard will be developed from scratch or the problems of the 998 will be tried to be overcome, but I believe that we will need the utility that this standard can reveal in the very near future. Let’s see when will our poor Quasimodo be able to reach his Esmeralda…
BONUS for those who reach the end: I didn’t mention a relatively new project (2021) which is leveraging some ERC-998 functions in order not to spoil the drama of the article: “Aavegotchi” is an NFT gaming protocol released by AAVE, one of the most popular open source liquidity protocols. They have a strong developer team and community, so I’m curious about their further developments & use-cases on that. Worth following!