One small tweak to NFTs functionality opens a whole new universe
What if non-fungibles could contain other non-fungibles?
Here’s new home for this article: https://crosshash.hashnode.dev/non-fungible-structures
One small tweak to NFTs functionality opens a whole new universe of use cases. What if non-fungibles could contain other non-fungibles? Just like you can own 20% of a company, that owns 30% of another company, you could own 20% of some non-fungible structure, that owns 30% of another non-fungible structure. And you could buy and sell those shares, and you could vote along with other shareholders on the destiny of those non-fungibles. And what’s important is that those non-fungible structures represent ownership over income generating assets, which you own, and which generate dividends for you. The only difference between non-fungible structures and legal entities is where your ownership is registered – in a state registry or in a blockchain. In blockchain such record or transaction can’t be blocked or sanctioned.
Alright, so blockchain is a table of what belongs to whom and how ownership changes over time. If it’s a plain NFT – then the case is simple: it’s either this NFT belongs to this person, or that NFT was sold from one person to another for this amount of money. For non-fungible structures (NFS) the rules are slightly more complicated:
Users and Non-Fungible Structures can be Owners
Shares of Non-Fungible Tokens and Structures can belong to Owners
Owners can trade shares on a free market
Changes in internal composition of a Structure must be approved by the majority of its owners
Several consequences from these rules:
Very complex long ownership structures can exist
The final beneficiary is not necessarily a user, it can be a structure too
Owner may destroy the ownership link, connecting it to a structure, without destroying the structure itself, so that the structure could continue to exist without any owners at all (it becomes autonomous NFS)
The majority owner can change the composition of the structure at will, while the minority owner can only propose changes for peer co-owners to vote
Not only users can propose or vote, but structures can also be programmed to propose or vote
If structure isn’t programmed to vote, it delegates voting to its owners
No part of a structure can belong to itself even through long chain of ownership, as it raises circular evaluation which boosts pricing; any transaction leading to such circular ownership will be rejected by the blockchain
Example use case:
You can replicate financial instrument of Special Purpose Vehicles (SPV) on blockchain with Non-Fungible Structures. Imagine you’re an investor, willing to get most of company’s financial result, while owning less than half of its shares, while your partner agreed to have less of result while retaining all the control over the asset. How would you structure this deal? Here is the way: 60% of your target company would belong to SPV, and 60% of the SPV would belong to your partner, while you retain 40% of SPV + 40% of the target. Your partner gets effectively 36% of financial result while having full governance control over the target, while you get remaining 64% of financial result without any control. This deal can easily be replicated with Non-Fungible Structures.
In order for this to work across various blockchains web3 community needs to have a common set of rules, so that any user could create, view, buy, sell, update and destroy NFS easily in any blockchain supporting this standard.
Will keep you posted on further development and would be grateful to hear your feedback 🤩😍🤩😍
P.S. Here’s github, where the standard is under development: https://github.com/ilyategmark/NFS
P.P.S. Here’s the discussions link: https://github.com/ilyategmark/NFS/discussions
P.P.P.S. We’ll analyze why ERC-998 standard for Composable NFT didn’t become as popular as ERC-721 in further papers, and how NFS standard learns from that.