In the past few months, several Web3 projects have adopted the ERC-6551 standard, or token-bound account. The new standard opens up a plethora of use cases across NFTs, gaming, DAOs and the metaverse.

People in crypto tend to hold strong opinions about wallets. Most can agree that the current state of custody concerns, complicated seed phrases and overall user experience make wallets one of the biggest barriers to entry for Web3 newcomers.

While several companies in the space claim they’re working to ease the process of connecting a wallet and purchasing a non-fungible token (NFT), some developers in the space are updating the infrastructure to do so. Specifically, the Ethereum blockchain which many NFTs already live on.

ERC-6551, an Ethereum Improvement Proposal (EIP) created in February by a group of developers and individuals from Web3 venture studio Future Primitive and NFT creator platform Manifold, allows NFTs to operate as wallets themselves. From receiving token airdrops to purchasing derivative collectibles, ERC-6551 opens up an integrated mechanism for custodying digital assets within a digital asset itself.

For example, let’s say a profile picture (PFP) NFT collection implements an ERC-6551 token standard. If the collection has its own native cryptocurrency, the NFT could custody those tokens. It could also custody derivative NFTs such as digital wearables – earning ERC-6551 the nickname “backpack” wallet.

Although the proposal has yet to officially become a token standard, it’s already being adopted by protocols and projects in the space.

On Monday, decentralized social media platform Lens announced its latest update, which allows ERC-6551 enabled tokens to custody their own profiles on the site. In May, fashion designer Jeff Staple’s Web3 studio Stapleverse implemented ERC-6551s into its SAPIENZ NFT collection, allowing holders to own external NFTs through their token-bound accounts.

According to Dune Analytics data from SeaLaunch, a group of pseudonymous blockchain researchers, at time of writing there are nearly 3,775 ERC-6551 based accounts created to date, with over 2,800 created since the beginning of July.

While the conversations around ERC-6551 tokens have been positive, some Web3 users still question the purpose of a token-bound account. Why do people need an NFT with its own “backpack” wallet?

ERC-6551s can foster a burgeoning ecosystem of new projects. The standard can help solve problems associated with trading NFTs and have the potential to redefine utility across Web3.

From EIP to ERC

At the core of ERC-6551 is a desire to improve upon the digital ownership infrastructure within Web3. For Future Primitive founding developers Benny Giang and Jayden Windle, it spurred them to author EIP-6551 to not only improve upon their own projects, but also to help others in the space.

Windle told CoinDesk that the idea came to the team when attempting to build the technology stack to support on-chain avatars owning their own digital clothing items. After many hours spent racking their brains for a solution, they thought – what if you could assign wallets to NFTs?

“Our characters could actually own their clothing because they had a wallet, and they could buy, sell and trade that clothing because the clothing was enough to use,” said Windle. “It solved a lot of really interesting problems on the indexing side and on the smart contract side, and was just a really nice, clean solution to this problem for a project.”

After successfully building the infrastructure to do so for their own project, Windle said he and Giang realized that the technology could bring value to many collections and ideas beyond Future Primitive.

“Our NFT project is cool, but every NFT should be able to own assets and take actions on chain,” said Windle. “That was when we realized that this would be best suited as an EIP because they’re designed to foster consensus around a common pattern and a common idea.”

From there, Windle and Giang penned the ERC-6551 proposal alongside Alanah Lam, founding product designer at Future Primitive, Manifold founder Wilkins Chung and software engineer Paul Sullivan, as well as co-authors Steve Jang and Raymond Huynh.

According to the proposal, ERC-6551 is Ethereum Virtual Machine (EVM) compatible, meaning it’s operable on networks including sidechain Polygon and layer 2s like Arbitrum and Optimism. It’s also operable on top of an existing NFT created with the ERC-721 token standard, which many Ethereum NFTs use.

The growing utility of ERC-6551

Token-bound accounts have already opened up a plethora of use cases that developers in the space are beginning to implement. With a “backpack wallet,” users can assign digital ownership to an asset, which can look different across many verticals of Web3.

Giang told CoinDesk that the early use cases he’s envisioning for ERC-6551 NFTs include gaming, decentralized autonomous organizations (DAOs), infrastructure tooling and more.

In a Web3 game, the standard could allow avatars to hold in-game collectibles or cryptocurrencies, or a DAO could grant additional NFTs to members that signify their participation or contributions. Decentralized social networks could let users represent their identities through wallet-bound NFTs.

“A lot of the blue chips are already experimenting and playing around with the standard,” said Giang. “There’s a high likelihood before the end of this year, maybe in the next few months, that a lot of the blue chips will have something using 6551 or token-bound accounts.”

Another example is the capability for co-creation on various NFT projects. SeaLaunch told CoinDesk that within digital fashion, this might look like multiple artists contributing NFTs to an on-chain garment, expanding the range of creativity within the industry.

“By combining these layers, a unique digital fashion item is born, showcasing transparent on-chain attribution to each creator involved,” said Sea Launch. “This opens up the possibilities for collaborative digital fashion creation, allowing for diverse artistic contributions and enabling the creation of truly one-of-a-kind digital garments.”

While digital fashion may be ready for ERC-6551, so are NFT loyalty programs. Fonz Olvera, CEO of Web3 ticketing platform Tokenproof told CoinDesk that the technology allows wallet ownership to extend one step further, helping brands better structure their Web3 engagement models.

“The membership into a loyalty program could be the parent token, and points, stamps or badges could be owned by that parent token,” said Olvera.

He also added that beyond Web3 loyalty, ERC-6551 tokens could facilitate NFT staking services, allowing holders to earn passive income on their tokens.

“ERC-6551 could be used in order for those fungible tokens or coins to accrue directly to the staked asset instead of accruing separately to the parent wallet,” said Olvera.

It’s still a proposal…

While ERC-6551 is gaining tracking across the Web3 space, it’s not yet an official token standard. In its early days, users have noticed certain tendencies within the structure that could pose challenges as the token becomes more adopted.

Matt Stephenson, Head of Cryptoeconomics at crypto investment firm Pantera Capital, told CoinDesk that the “recursive nature” of tokens with token-bound accounts may introduce small friction when transferring assets.

“If you have a pair of NFT shoes that has a pair of laces, that have a friendship charm on the lace, we have a nested structure where the shoe owns the lace which owns a little charm,” said Stephenson. “It definitely was the case at one point that it’s more expensive to transfer the charm only.”

Windle specified that ERC-6551 wallets are smart contract wallets, which generally cost more gas fees to use. However, he noted that gas prices for transfers are still fairly low, even when network fees are higher than normal.

There were also early speculations that an ERC-6551 token standard could allow soulbound NFTs, which are non-transferrable, to be sold, and therefore no longer soulbound.

In response to luxury brand Louis Vuitton’s sale of $39,000 soulbound digital trunks, Jeff Krantz, co-founder of crypto security platform Fire said in a tweet that if the NFT was purchased by an ERC-6551 wallet, the buyer could sell the whole wallet. He claimed this was the “best way to do it,” in order to allow buyers to sell the expensive trunk if they didn’t want to hold it forever.

Windle told CoinDesk that soulbound NFTs purchased by an ERC-6551 wallet are, in fact, transferable.

“The token is still soulbound in the sense that it is bound to a single account, but not in the pure sense of being bound to a single owner,” said Windle.

The future of ERC-6551

Before ERC-6551 graduates from its status as a proposal and becomes a legitimate token standard, new examples of utility will likely emerge as projects test out their own use cases of token-bound accounts.

“The true potential of token bound accounts is yet to be fully realized, and as the ecosystem evolves, we can expect their adoption to expand into more use cases and industries, unlocking new frontiers of value creation, ownership, and interaction,” SeaLaunch told CoinDesk.

But the fundamental purpose of a token-bound account is digital ownership.

Stephenson told CoinDesk that on the philosophical side of ERC-6551 ownership, it’s exciting that the narrative allows for a digital asset to possess its own on-chain assets. He said that at the end of the day, there’s still one user behind the token-bound account that owns the wallet and its assets.

“You can say, technically, couldn’t the owner just own both of those [NFTs] and pretend it’s part of the story?” said Stephenson. “If we’re going to treat [the NFTs] as real, treating them as owning a thing, just feels more natural to me than saying the owner happens to own both.”