ERC-7721: Lockable Extension for ERC-1155

Interface for enabling locking of ERC-1155 using locker and token id based approvals

Abstract

The Lockable Extension for ERC-1155 introduces a robust locking mechanism for specific Non-Fungible Tokens (NFTs) within the ERC-1155 token standard, allowing for various uses while preventing sale or transfer. The token’s owner can lock it, setting up locker address (either an EOA or a contract) that exclusively holds the power to unlock the token. Owner can also provide approval for tokenId, enabling ability to lock asset while address holds the token approval. Token can also be locked by approved, assigning locker to itself. Upon token transfer, these rights get purged.

Inspired by the need for enhanced security and control over tokenized assets, this extension enables token owners to lock individual NFTs with tokenId, ensuring that only approved users can withdraw predetermined amounts of locked tokens. Thus, offering a safer approach by allowing token owners to specify approved token IDs and amounts for withdrawal.

Motivation

ERC-1155 has sparked an unprecedented surge in demand for NFTs. However, despite this tremendous success, the NFT economy suffers from secondary liquidity where it remains illiquid in owner’s wallet. There are projects which aim to address the liquidity challenge, but they entail the below mentioned inconveniences and risks for owners as they necessitate transferring the participating NFTs to the projects’ contracts.

• Loss of utility: The utility value of NFTs diminishes when they are transferred to an escrow account, no longer remaining under the direct custody of the owners.
• Lack of composability: The market could benefit from increased liquidity if NFT owners had access to multiple financial tools, such as leveraging loans and renting out their assets for maximum returns. Composability serves as the missing piece in creating a more efficient market.
• Smart contract vulnerabilities: NFTs are susceptible to loss or theft due to potential bugs or vulnerabilities present in the smart contracts they rely on.

The aforementioned issues contribute to a poor user experience (UX), and we propose enhancing the ERC-1155 standard by implementing a native locking mechanism: Rather than being transferred to a smart contract, an NFT remains securely stored in self-custody but is locked. During the lock period, the NFT’s transfer is restricted while its other properties remain unchanged. NFT Owner retains the ability to use or distribute it’s utility.

NFTs have numerous use cases where the NFT must remain within the owner’s wallet, even when it serves as collateral for a loan. Whether it’s authorizing access to a Discord server, or utilizing NFT within a play-to-earn (P2E) game, owner should have the freedom to do so throughout the lending period. Just as real estate owner can continue living in their mortgaged house, take personal loan or keep tenants to generate passive income, these functionalities should be available to NFT owners to bring more investors in NFT economy.

Lockable NFTs enable the following use cases :

• NFT-collateralized loans: Utilize NFT as collateral for a loan without locking it on the lending protocol contract. Instead, lock it within owner’s wallet while still enjoying all the utility of NFT.
• No collateral rentals of NFTs: Borrow an NFT for a fee without the need for significant collateral. Renter can use the NFT but not transfer it, ensuring the lender’s safety. The borrowing service contract automatically returns the NFT to the lender once the borrowing period expires.
• Buy Now Pay Later (BNPL): The buyer receives the locked NFT and can immediately begin using it. However, they are unable to sell the NFT until all installments are paid. Failure to complete the full payment results in the NFT returning to the seller, along with a fee.
• Composability: Maximize liquidity by having access to multiple financial tools. Imagine taking a loan against NFT and putting it on rentals to generate passive income.
• Primary sales: Mint an NFT for a partial payment and settle the remaining amount once owner is satisfied with the collection’s progress.
• Soulbound: Organization can mint and self-assign locker, send token to user and lock the asset.
• Safety: Safely and conveniently use exclusive blue chip NFTs. Lockable extension allows owner to lock NFT and designate secure cold wallet as the unlocker. This way, owner can keep NFT on MetaMask and easily use it, even if a hacker gains access to MetaMask account. Without access to the cold wallet, the hacker cannot transfer NFT, ensuring its safety.

This proposal is different from other locking proposals in number of ways:

• This implementation provides a minimal implementation of lock and unlock and believes other conditions like time-bound are great ideas but can be achieved without creating a specific implementation. Locking and Unlocking can be based on any conditions (e.g. repayment, expiry). Therefore time-bound unlocks a relatively specific use case that can be achieved via smart-contracts themselves without that being a part of the token contract.
• This implementation proposes a separation of rights between locker and approver. Token can be locked with approval and approved can unlock and withdraw tokens (opening up opportunities like renting, lending, BNPL etc), and token can be locked lacking the rights to revoke token, yet can unlock if required (opening up opportunities like account-bound NFTs).
• Our proposal implement ability to transferAndLock which can be used to transfer, lock and optionally approve token. Enabling the possibility of revocation after transfer.

By extending the ERC-1155 standard, the proposed standard enables secure and convenient management of underlying NFT assets. It natively supports prevalent NFTFi use cases such as staking, lending, and renting. We anticipate that this proposed standard will foster increased engagement of NFT owners in NFTFi projects, thereby enhancing the overall vitality of the NFT ecosystem.

Specification

The key words “MUST”, “MUST NOT”, “REQUIRED”, “SHALL”, “SHALL NOT”, “SHOULD”, “SHOULD NOT”, “RECOMMENDED”, “NOT RECOMMENDED”, “MAY”, and “OPTIONAL” in this document are to be interpreted as described in RFC 2119 and RFC 8174.

Overview

ERC-1155 compliant contracts MAY implement this EIP to provide standard methods of locking and unlocking the token at its current owner address.

Token owner MAY lock the token and assign locker to some address using lock(uint256 tokenId, address account, address _locker, uint256 amount) function, this MUST set locker to _locker. Token owner or approved MAY lock the token using lock(uint256 tokenId, address account, uint256 amount function, this MUST set locker to msg.sender. Token MAY be unlocked by locker using unlock(uint256 tokenId, address account, uint256 amount) function.

Token owner MAY approve specific for specific tokenId using setApprovalForId(uint256 tokenId, address operator, uint256 amount) ensuring only approved tokenId could be spent by operator. getApprovalForId(uint256 tokenId, address account, address operator) SHALL return amount approved on account by operator.

If the token is locked, the getLocked(uint256 tokenId, address account, address operator) function MUST return an amount that is locked by operator on account. For tokens that are not locked, the getLocked(uint256 tokenId, address account, address operator) function MUST return 0.

lock function MUST revert if account has insufficient balance or not owner or approved of tokenId. unlock function MUST revert if provided amount of tokenId is not locked. ERC-1155 safeTransferFrom of a token MUST revert if account transfer locked amount, maximum transferable amount MUST be balance - getLocked.

Token MAY be transferred and locked, also assign approval to locker using transferAndLock function. This is RECOMMENDED for use-cases where Token transfer and subsequent revocation is REQUIRED.

Interface

// SPDX-License-Identifier: CC0-1.0

pragma solidity >=0.7.0 <0.9.0;

/// @title Lockable Extension for ERC1155
/// @dev Interface for the Lockable extension
/// @author piyush-chittara 

interface IERCLockable1155 is IERC1155{

    /**
     * @dev Emitted when tokenId is locked
     */
    event Lock(uint256 indexed tokenId, address account, address _locker, uint256 amount);

    /**
     * @dev Emitted when tokenId is unlocked
     */
    event Unlock (uint256 indexed tokenId, address account, address _locker, uint256 amount);

    /**
     * @dev Lock the tokenId if msg.sender is owner or approved and set locker to msg.sender
     */
    function lock(uint256 tokenId, address account, uint256 amount) external;

    /**
     * @dev Lock the tokenId if msg.sender is owner and set locker to _locker
     */
    function lock(uint256 tokenId, address account, address _locker, uint256 amount) external;

    /**
     * @dev Unlocks the tokenId if msg.sender is locker
     */
    function unlock(uint256 tokenId, address account, uint256 amount) external;

    /**
     * @dev Tranfer and lock the token if the msg.sender is owner or approved. 
     *      Lock the token and set locker to caller
     *      Optionally approve caller if bool setApprove flag is true
     */
    function transferAndLock(address from, address to, uint256 tokenId, uint256 amount, bool setApprove) external;

    /**
     * @dev Returns the wallet, that is stated as unlocking wallet for the tokenId.
     *      If (0) returned, that means token is not locked. Any other result means token is locked.
     */
    function getLocked(uint256 tokenId, address account, address operator) external view returns (uint256);

    function setApprovalForId(uint256 tokenId, address operator, uint256 amount) external;
}

Rationale

This proposal exposes transferAndLock(address from, address to, uint256 tokenId, uint256 amount, bool setApprove) which can be used to transfer token and lock at the receiver’s address. This additionally accepts input bool setApprove which on true assign approval to locker, hence enabling locker to revoke the token (revocation conditions can be defined in contracts and approval provided to contract). This provides conditional ownership to receiver, without the privilege to transfer token.

Backwards Compatibility

This standard is compatible with ERC-1155 standards.

Existing Upgradeable ERC-1155 can upgrade to this standard, enabling locking capability inherently and unlock underlying liquidity features.

Test Cases

Reference Implementation

Reference Interface can be found here.

Reference Implementation can be found here.

Security Considerations

There are no security considerations related directly to the implementation of this standard for the contract that manages ERC-1155.

Considerations for the contracts that work with lockable tokens

• Once a certain amount is locked, specified amount can not be transferred from locked account.
• If token is locked and caller is locker and approved both, caller can transfer the token.
• locked token with locker as in-accesible account or un-verified contract address can lead to permanent lock of the token.
• There are no MEV considerations regarding lockable tokens as only authorized parties are allowed to lock and unlock.

Copyright

Copyright and related rights waived via CC0.

Citation

Please cite this document as:

Piyush Chittara (@piyush-chittara), "ERC-7721: Lockable Extension for ERC-1155 [DRAFT]," Ethereum Improvement Proposals, no. 7721, May 2023. [Online serial]. Available: https://eips.ethereum.org/EIPS/eip-7721.