ERC-7634: Limited Transfer Count NFT

Abstract

This standard extends ERC-721 to introduce a mechanism that allows minters to customize the transferability of NFTs through a parameter called TransferCount. TransferCount sets a limit on how many times an NFT can be transferred. The standard specifies an interface that includes functions for setting and retrieving transfer limits, tracking transfer counts, and defining pre- and post-transfer states. The standard enables finer control over NFT ownership and transfer rights, ensuring that NFTs can be programmed to have specific, enforceable transfer restrictions.

Motivation

Once NFTs are sold, they detach from their minters (creators) and can be perpetually transferred thereafter. Yet, many circumstances demand precise control over NFT issuance. We outline their advantages across three dimensions.

Firstly, by imposing limitations on the frequency of NFT sales or trades, the worth of rare NFTs can be safeguarded. For example, in auctions, limiting the round of bids for a coveted item can uphold its premium price (especially in the Dutch Auction). Similarly, in the intellectual property sector, patents could be bounded by a finite number of transfers prior to becoming freely accessible (entering CC0). In the gaming sphere, items like weapons, apparel, and vehicles might possess a finite lifespan, with each usage or exchange contributing to wear and tear, culminating in automatic decommissioning (burn) upon reaching a predetermined threshold.

Secondly, enforcing restrictions on trading frequency can enhance network security and stability by mitigating the risks associated with malicious NFT arbitrage, including high-frequency trading (HFT). While this presents a common vulnerability, the lack of easily deployable and effective methods to address it has been notable, making our approach particularly valuable.

Additionally, limiting the round of transfers can mitigate the economic risks associated with (re)staking NFTs, thereby curbing potential bubbles. With the rapid evolution of restaking mechanisms, it's foreseeable that users may soon engage in multiple rounds of NFT staking (e.g., NFT → stNFT → st^2NFT), akin to staking liquidity tokens with third-party platforms like EigenLayer (Ethereum), Babylon (Bitcoin), and Picasso (Solana). Notably, the current setup of EigenLayer employs an NFT as the restaking position (a type of proof-of-restake) for participants. Should this NFT be restaked repeatedly into the market, it could amplify leverage and exacerbate bubble dynamics. By imposing limits on the number of stake iterations, we can proactively prevent the emergence of Ponzi-like dynamics within staking ecosystems.

Key Takeaways

This standard provides several advantages:

Controlled Value Preservation: By allowing minters to set customized transfer limits for NFTs, this standard facilitates the preservation of value for digital assets Just as physical collectibles often gain or maintain value due to scarcity, limiting the number of transfers for an NFT can help ensure its continued value over time.

Ensuring Intended Usage: Setting transfer limits can ensure that NFTs are used in ways that align with their intended purpose. For example, if an NFT represents a limited-edition digital artwork, limiting transfers can prevent it from being excessively traded and potentially devalued.

Expanding Use Cases: These enhancements broaden the potential applications of NFTs by offering more control and flexibility to creators and owners. For instance, NFTs could be used to represent memberships or licenses with limited transferability, opening up new possibilities for digital ownership models.

Easy Integration: To ensure broad adoption and ease of integration, this standard extends the existing ERC-721 interface. By defining a separate interface (IERC7634) that includes the new functions, the standard allows existing ERC-721 contracts to adopt the new features with minimal changes. This approach promotes backward compatibility and encourages the seamless incorporation of transfer limits into current NFT projects.

Specification

The key words “MUST”, “MUST NOT”, “REQUIRED”, “SHALL”, “SHALL NOT”, “SHOULD”, “SHOULD NOT”, “RECOMMENDED”, “MAY”, and “OPTIONAL” in this document are to be interpreted as described in RFC 2119.

• setTransferLimit: a function establishes the transfer limit for a tokenId.
• transferLimitOf: a function retrieves the transfer limit for a tokenId.
• transferCountOf: a function returns the current transfer count for a tokenId.

Implementers of this standard MUST have all of the following functions:

Rationale

Does tracking the internal transfer count matter?

Yes and no. It is optional and quite depends on the actual requirements. The reference implementation given below is a recommended one if you opt for tracking. The _incrementTransferCount function and related retrieval functions (transferLimitOf and transferCountOf) are designed to keep track of the number of transfers an NFT has undergone. This internal tracking mechanism is crucial for enforcing the minter's transfer limits, ensuring that no further transfers can occur once the limit is reached.

If opting for tracking, is that all we may want to track?

It is recommended to also track the before and after. The optional _beforeTokenTransfer and _afterTokenTransfer functions are overridden to define the state of the NFT before and after a transfer. These functions ensure that any necessary checks or updates are performed in line with the transfer limits and counts. By integrating these checks into the transfer process, the standard ensures that transfer limits are consistently enforced.

Backwards Compatibility

This standard can be fully ERC-721 compatible by adding an extension function set.

Extensions

This standard can be enhanced with additional advanced functionalities alongside existing NFT protocols. For example:

• Incorporating a burn function (e.g., ERC-5679) would enable NFTs to automatically expire after reaching their transfer limits, akin to the ephemeral nature of Snapchat messages that disappear after multiple views.

• Incorporating a non-transferring function, as defined in the SBT standards, would enable NFTs to settle and bond with a single owner after a predetermined number of transactions. This functionality mirrors the scenario where a bidder ultimately secures a treasury after participating in multiple bidding rounds.

Reference Implementation

A recommended implementation is demonstrated as follows:

• _incrementTransferCount: an internal function facilitates incrementing the transfer count.
• _beforeTokenTransfer: an overrided function defines the state before transfer.
• _afterTokenTransfe: an overrided function outlines the state after transfer.

Security Considerations

• Ensure that each NFT minter can call this function to set transfer limits.
• Consider making transfer limits immutable once set to prevent tampering or unauthorized modifications.
• Avoid performing resource-intensive operations when integration with advanced functions that could exceed the gas limit during execution.

Copyright

Copyright and related rights waived via CC0.