Sui NFTs: Leading DeFi to Mass Adoption

Original author: six0hfour, Typus team

Original compilation: Kyrie

Original source: Typus Finance

This study aims to explore Sui's object-based programming model and how it can leverage a variety of NFT structures to contribute to the large-scale application of DeFi.

We previously wrote a report on why we believe Sui is the best choice for defining and building a blockchain-based DeFi-native asset. Sui's basic design captures the essence of digital assets on the blockchain and enables smart contracts to operate on it, replacing the function of the middleman.

Difference between on-chain and off-chain

On blockchains like EVM or Solana, the state of digital assets, or NFTs, are stored off-chain. This is an acceptable model for static NFTs, since these NFTs are not transferred or undergo any state changes.

A simple analogy is a Merkle tree, where the NFTs are its leaves, and what is published on the blockchain is just the root of the tree.

This model works if users frequently create new NFTs and don't pay much attention to them after creation; they don't need to make any modifications or transfers to them. However, if one of the NFT fields needs to be transferred or updated, this becomes more expensive and requires a longer transaction hash. Since only the root of the tree is published on the blockchain, each update requires a Merkle proof. Even reading an NFT requires a Merkle proof.

A recent paper by a16z crypto, "Restrictions on Reversibility Proof Systems, Impact on Stateless Blockchains" explores the concept of stateless blockchains and their trade-offs. The concept stems from a challenge to the blockchain paradigm, where each validator is traditionally required to store the complete state of the entire system. This requirement raises concerns about centralization, because as the state grows larger, only well-funded organizations can afford to store it.

This leads to the concept of stateless blockchain design, which proposes that validators only store a small part of the global state of the system (for example, only the root of a Merkle tree). Consumers who need to initiate transactions must publish proofs that their transactions are valid (e.g., a Merkle proof path to a leaf).

The paper identified a problem: "...when other (irrelevant) transactions update the global state, users must monitor the network and periodically update their proofs, potentially invalidating their proofs." Unfortunately, this New security threats are introduced as off-chain state management becomes rather cumbersome.

When the metadata exists off-chain, smart contract calls will be limited. This not only fails to improve product efficiency, but also fails to improve distribution efficiency. Fundamentally, it fails the purpose of a decentralized infrastructure.

Sui allows us to store NFT metadata completely on-chain, the most notable feature of which is the ability to store large amounts of arbitrary data on-chain. In our previous report, we gave an analogy to how traditional storage costs work.

Let's use a simple example to illustrate the problem of traditional storage cost operation:

Alice has been using Sui Network since the early days of its launch. At that time, there was not much data stored on the chain, and she enjoyed a lower gas fee.

And Bob started to use Sui Network after it matured, because a large amount of data had been stored on the chain at that time, resulting in Bob having to pay a higher gas fee.

Sui’s token economic model addresses storage costs through a storage fund, specifically redistribution of past transaction fees to future validators. Validators will receive additional rewards to cover their costs when on-chain storage demand is high, and conversely lower rewards when storage demand is low.

It also includes a delete option that allows users to get refunds by deleting previously stored on-chain data. This mechanism allows users to only store necessary data on the chain. This leasing model, which pays for storage through periodic payments, is very efficient for projects on Sui. It introduces a market-based mechanism to free up storage space when storage costs become uneconomical.

Storing metadata on-chain ensures token programmability. Assets may mutate and sometimes combine. Using Sui, an object-oriented language for smart contract programming, storing structs on the chain facilitates composability. If NFTs could communicate with each other, even NFTs from different formats, it would open up new verticals.

On other blockchains, an NFT is simply a record of ownership that contains a URL to a specific off-chain storage. As we all know, this will make the full application of blockchain have many limitations.

Unlike other blockchains, Sui is able to store jpeg images on-chain and has rich mutable and immutable properties. NFTs are not just what we know today, they become on-chain applications with stateful dynamic features within Sui. This will ultimately drive more creativity unleashed, user adoption and increased consumer value.

Dynamic Evolvability

Sui's vision for NFT offers a different kind of imaginative space for blockchain. Assets are dynamic; they mutate, go through lifecycles, and sometimes even combine. To do this, we need to have an infrastructure that allows us to accurately simulate the lifecycle of these assets.

If NFTs cannot simulate complex and evolving assets, their use is limited to static assets such as currency, static PFP, and so on. Dynamic fields in Sui model the lifecycle of dynamic assets well; they can store heterogenous values and are only affected by gas charges when accessed, adding or removing them at any time.

Imagine what composability and conditional logic can create:

• An NFT that evolves based on your trading activity on the DeFi protocol, providing dynamic rewards as you level up.
• An on-chain structured product that reflects changes in our macro environment.
• A work of art that changes when signed by the artist or at auction.
• An in-game asset that upgrades when you lead a battle or reach the top ten player leaderboard.

Sui's programming language allows these lifecycles to be modeled at a fundamental level. The evolvability of these assets does not depend on contract updates on the Sui, allowing you to make internal state changes in dynamic fields, or remove and add child objects.

Let's look at an example called Tails, which has two functions -- key and store. The key defines it as an ownable object, just like an NFT appears in your wallet. The store function allows for free transfer and encapsulation. The Tail Badge at the bottom is an accessory that can be added or removed when certain conditions are met.

Through dynamic fields, we can implement the behavior of "wearing a badge". The badge becomes a child object that can be stored inside Tail.

Create dynamic properties of NFTs with just one line of code. These dynamic NFTs and composability will take us to different layers of modern on-chain dApps. With data stored on-chain, validators are able to know where to look for data without the need for users to provide it.

Kiosk Standard

Why can't the blockchain bring too many disruptive changes?

A digital asset must encode rules, and if those rules cannot be enforced by smart contracts, it cannot be disintermediated because it will rely on a central entity to obey the rules. NFTs should encode rules such as royalties for secondary sales, copyright verification, and signing.

EVM chains and Solana cannot model assets that evolve over their lifecycles, store metadata and enforce rules on-chain. Existing frameworks are sufficient for modeling simple, stereotyped assets, but not sufficient for disruptive industry change.

Just last year, there was a grim royalty discussion on Solana. Many have raised their needs: There needs to be strong incentives for artists to migrate to Web3. If the NFT standard is not adjusted, the market, tools, and artists will lose the incentives built here.

Sui has implemented an NFT standard called Kiosk that solves this problem. As a creator, Sui Kiosk supports strict enforcement of transfer policies and related rules to protect assets and enforce asset ownership. Sui Kiosk gives creators more control over their creations, giving creators and owners control over how their creations are used.

This means that digital assets on Sui allow rules to be encoded so that they can be executed by smart contracts, creating an excellent creative environment for artists and creators.

Composable NFT

Composable NFTs can more accurately portray consumer needs. These composable parts serve as behavioral indicators, freeing the protocol from collecting large amounts of data, while allowing personalized loyalty systems to fully function.

Protocols will be able to ditch overly simplistic membership tiers (eg bronze, silver, gold) and offer a truly personal loyalty system that reflects the uniqueness of consumers.

The new solution is composable NFTs that evolve dynamically based on user interaction. This evolution can be triggered by off-chain data (weather, location, etc.) and on-chain data (transactions with specific protocols). Each NFT will visually reflect your status. Low-active users who were previously unmotivated can now see the impact of their activity immediately. Highly active users continue to see reflections and unlock rewards associated with uniqueness and perks.

Utilize NFT features to unlock unique rewards

The reason why NFTs have high popularity is that users can obtain different characteristics and bring users a feeling of rarity and uniqueness. By replacing the traditional bronze, silver, and gold tiers, NFTs will evolve and add different features based on different types of user activity, resulting in specific rewards tailored to users.

A good Web 2.0 example is a credit card rewards system. Many credit card companies now offer customized rewards programs based on the user's purchases.

For example, Alice often shops at the mall. The rewards program she chose was a shopping program in cooperation with the mall. The more she buys at the mall, the more points she accumulates, which can be redeemed instantly for discounts on merchandise or rebates on fees. Bob, on the other hand, travels a lot and uses the same credit card to buy his tickets. His rewards program of choice is a travel program with an airline. The more he buys with the airline, the more points he accumulates, which can be redeemed for seat upgrades or mileage upgrades.

Dining rewards for foodies who love to use their credit cards at restaurants, and movie theater rewards for frequent movie ticket buyers. Alice and Bob can freely switch the selected reward plan, providing a personalized and customized incentive system.

Composable NFTs enable frictionless interactions in the Web3 world. Imagine if Bob trades game assets on a DeFi protocol, his avatar will add a sword feature, and if Bob makes more transactions, the style of the sword will change to show a higher status. The sword feature here represents an in-game fee discount unique to GameFi projects partnering with this DeFi protocol. For Alice, her avatar will add a gold chain feature, as she often provides liquidity by depositing project tokens on DeFi protocols. Gold Chain features represent additional revenue opportunities unique to projects working with this DeFi protocol.

The point here is that instead of using a single status flag, each user's status will be represented by a unique set of characteristics. Therefore, even though Alice and Bob have the same transaction amount, they represent completely different states. What ties them all together is the degree of rarity associated with the trait. Not everyone is interested in the same rewards, the protocol can provide users with different rewards by developing various partnerships, and each reward can be accessed and unlocked through the evolution of combinable NFT features.

What is the relationship between DeFi and NFT?

Composable NFTs are able to interact with each other and function like Lego bricks. They open up a whole new world of interoperability between different kinds of applications on the blockchain. A better analogy is that composability is to the enterprise what open source is to software development. This creates a new financial infrastructure, making the blockchain more accessible to the public with the emergence of new application scenarios and the popularity of Web3.

The previously mentioned features make Sui a super chain for NFT and game assets. A core strategy of Sui is to focus on building an excellent environment for NFTs to drive user growth and achieve mass adoption.

This is especially important because DeFi protocols cannot achieve mass adoption through DeFi alone. As we have seen on other L1s, if there is only DeFi, it will be difficult to maintain market heat, total locked positions, and liquidity for a long time. Instead, liquidity should come from retail users creating, trading, and exchanging digital assets in the NFT community and GameFi projects.

The role of the DeFi protocol is to serve as an infrastructure that enables assets to be freely traded and used.

Sui is able to save metadata on-chain, making NFT a stateful and dynamic on-chain application within Sui. This dynamic evolvability enables them to be a tool within the DeFi protocol ecosystem, allowing for more creativity in project exploration. Imagine this: building a fully on-chain DeFi user incentive system through composable NFTs.

Use the Sui Kiosk standard to encourage creators, artists, and builders to create digital assets on-chain. As more and more assets are in circulation on the chain, there will be financial needs for asset empowerment and asset efficiency improvement. Imagine: through the call and put option machine gun pool to obtain the income of native NFT/game assets.

With the novel Sui functionality being built, we are bullish on Sui being able to truly disrupt the blockchain. Typus is always at the forefront of implementing new features and is excited about the high composability and cohesion of the dynamic on-chain Sui assets and the DeFi ecosystem. Imagine this: leading Web2 users to participate in experimental NFT collections through zk logins, sponsored deals, coupons, dynamic attributes, transactions.

The future is Sui's.

references

Suinami Riders TG group chat