NFT Leasing: How the New NFT Token Standard “ERC-4907” Opens the Next Generation Leasing Market

In late June, a new Ethereum token standard called “ERC-4907” became a standard with a status of “Final” that will allow users to lend out their non-fungible tokens (NFTs).

“ERC-4907” adds a new role to the NFT standard, separating NFT ownership and usage rights – making “leasing” possible. The renter can use the NFT until the lease expires, and the NFT is automatically returned to its owner after the lease expires.

“Before ERC-4907, every time you transferred an NFT, you lost ownership of it,” says Lareina, head of development at Double Protocol, a startup building rentable NFT infrastructure and a developer of a new token standard said. But by splitting ownership and usage rights, “ERC-4907” standard NFTs can be lent and leased in a permissionless manner.

To be sure, rentable NFTs have not been officially available before. Reaching a “final” state means that Ethereum proposals, or projects aimed at improving the Ethereum blockchain, can no longer be updated. Other builders can now incorporate the proposal into a smart contract without worrying that the developer 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 make a rentable NFT
Most high-profile NFT projects, such as Bored Ape Yacht Club, CryptoPunks, and Azuki, are minted or packaged in the “ERC-721” token standard, which represents ownership of digital or physical assets and can be traded on Ethereum Validated on the blockchain.

These token standards stipulate that the owner of the NFT can use the digital asset. For example, in order to use the token Axie #5 from the play-to-earn game Axie Infinity, you must have this NFT in your wallet. To have an NFT in your wallet, you have to mint that Axie or buy it on the secondary market.

In other words, buying this Axie is the basis for you to be able to use it – just like other NFTs minted according to the “ERC-721” standard.

The NFT minted according to the “ERC-4907” token standard divides the ownership and use rights of digital assets. The “ERC-4907” token standard can be wrapped around existing NFTs minted according to “ERC-721” or other Ethereum standards, allowing the wrapped NFTs to be read by smart contracts in the rentable NFT marketplace, and borrowed or rented — — as if it was originally minted according to the “ERC-4907″ standard.

Additionally, owners can set time parameters to decide how long a lender can use their leased NFTs. When the time is up, the user can no longer use the NFT, and the leased NFT goes back to the original owner – the owner does not need to manually request the return of their assets.

Usage scenarios and future prospects of rentable NFTs
Sharing access to NFTs is not new. Gaming guilds buy NFTs that are too expensive for most players and lend them out in exchange for a portion of the player’s profit. Such guilds, such as Yield Guild Games (YGG), followed Axie Infinity in late summer and early fall last year, when the game’s popularity was at its peak.

“When an owner transfers rights (of their NFTs) to a guild, the stakes are high, Shrug Newton, the builder of Double Protocol, told The Block in an interview: “You have to trust the guild. If the guild disappears, then You will lose your assets.”

However, “ERC-4907” allows users to manually create unions using the valuable NFTs they own, where lenders can collect rental fees and users can keep the profits earned from the game. They can do this in a trustless and permissionless manner by leveraging Ethereum smart contracts, Lareina said.

While this may seem like a threat to the guild business model, Double Protocol believes that blockchain-based gaming guilds could become market makers for rentable NFTs — buying and selling securities and often as an entity that provides liquidity. And mature guild organizations like YGG can use “ERC-4907” to make their guilds more decentralized.

Lareina added that Double Protocol sees gaming guilds as big stakeholders in the rentable NFT market, and wants to cater to them as much as possible. This could include creating tools that allow guild organizations to create new guilds with the click of a button, as well as controlling the distribution of game revenue between lenders and renters.

In addition to gaming, rentable NFTs can also increase the use of metaverse land. Lareina noted that Metaverse landowners can rent out their properties for events. If an investor buys a piece of metaverse land but lacks the ability to build on it, they can lease the land to another party to build on and earn rental income. At the same time, landowners can also protect those assets by removing any other property they own on their metaverse land during the lease term and adding it back after the lease term ends.

The technology could also facilitate Web3-based book lending or free trials of new products, among other areas, Lareina added.

All in all, rentable NFTs unlock a new market for NFT usage rights, as it is decoupled from ownership. “We’re building our product on this philosophy,” Lareina said.