A Beginner’s Guide to EIP-5725: Transferable NFTs

Since the launch of the ERC-721 standard for non-fungible tokens in 2018, the crypto world has seen NFTs evolve in ways that would have been hard to imagine five years ago. New use cases and opportunities fundamentally change the way users interact with not only the NFTs themselves, but also with the projects and companies behind the NFTs.

Core contributors to ApeSwap, a decentralized exchange and bond protocol, and team members of Paladin, a blockchain security provider, collaborated to develop an extension to the ERC-721 standard that enables exciting new functionality for NFTs. EIP-5725: Transferable Vesting The NFT standard is the result of careful consideration of what NFTs can and should be, as well as many rounds of real-world testing and iteration.

What is EIP-5725?

An Ethereum Improvement Proposal, or EIP, is a document used to recommend and describe standards for the Ethereum community. There are several types of EIPs, but EIP-5725 is an ERC (Ethereum Requests for Comments) proposal, meaning it affects application-level standards and specifications.

The EIP that ApeSwap and Paladin have worked together to create is called EIP-5725: Transferable Vesting NFT. This EIP provides an interface for transferable earned NFTs that release underlying tokens over time.

While timelocks and vesting are both important mechanisms for controlling the distribution of ERC-20 tokens and have been around since the age of ICOs, the lack of standardization across the industry can be problematic. Without a standardized approach, it can be difficult for investors to understand how a particular token is being distributed and what the implications of this distribution might be.

How does the EIP-5725 work?

EIP-5725 allows the implementation of a standard API for NFT-based contracts to allow two primary functions: portability and vesting.

Projects implementing EIP-5725 can use their NFTs to represent unvested tokens belonging to the holder of the NFT. In other words, this standard allows projects to either integrate with an existing NFT marketplace, or create their own, to be used as a secondary market for earning tokens.

Using EIP-5725, projects can also contain and represent the earned and locked properties of any underlying token (ERC-20 or otherwise) issued to the NFT holder. This standard is an extension of the ERC-721 token that provides basic functionality for creating earned NFTs, claiming tokens, and reading earning curve properties.

Why is EIP-5725 important?

EIP-5725 allows projects to implement several new features to create value for users and projects:

1. Transferability of earning tokens: When using the EIP-5725, earning tokens are issued to the holder of a transferable NFT, meaning users can buy or sell NFTs representing unearned tokens. This secondary market offers users more flexibility around the underlying asset as they can liquidate or trade it at any time.
2. Custom NFT Art Features: The EIP-5725 also allows projects to create custom NFT art based on a variety of underlying inputs. For example, projects may choose to include a limited edition seal or color scheme on NFTs of special significance or value, which can then become one of the considerations when valuing the NFT on a secondary market.
3. New earnings curves: The accrual curves in EIP-5725 NFTs do not have to be linear – they are fully customizable, and can have accelerating or decelerating accruals depending on the use case required by the project.
4. Aggregate, comprehensive views of earning tokens and properties: The standard EIP-5725 API enables projects to create holistic dashboards and reporting tools that aggregate the status of their earned NFTs across entire chains, which can help the project make more informed strategic decisions about future releases and marketing efforts.

How are projects using the EIP-5725 doing right now?

ApeSwap has used the EIP-5725 standard to create a category of products called ApeSwap Bonds. ApeSwap bonds allow crypto projects to create transferable NFTs that users purchase with liquidity provider tokens. Holders of NFTs then receive tokens at a discount, which is set by a number of factors, linearly over a vesting period set by the project.

This approach is superior to the traditional yield farming model in that the capital that a project puts forward as discounted tokens generates a return in the form of project-owned liquidity, as opposed to leased liquidity where reward tokens used provide no return for the project.

To date, ApeSwap has created $1 million in protocol-owned liquidity for itself and over $1.5 million in liquidity owned by its partners through the sale of ApeSwap bonds.

Why should users train on the EIP-5725?

ApeSwap and Paladin are excited to promote the EIP-5725 standard to the crypto community at large to enable users to take advantage of the many opportunities it creates. Users who are interested should learn more about ApeSwap Bonds in the documentation and stay tuned for new Bonds partners and features that are coming soon.

If you have a favorite crypto project that might be a good fit for bonds, ask them to contact ApeSwap here.

Additionally, users and project contributors are encouraged to add to the ongoing discussion on the Ethereum Magicians forum.