Introducing the Nexera Protocol: The Next-Generation Standard for NFTs and Interoperable Metadata
The Nexera Protocol is a groundbreaking solution for creating mutable and composable NFTs called MetaNFTs, which are more flexible, scalable and extensible.
After years of research and development work, AllianceBlock proudly unveils the Nexera Protocol — ushering in the next era for the next generation of NFTs. Built with current NFT standards, the Nexera Protocol enables the creation of mutable and composable NFTs, called MetaNFTs.
MetaNFTs are third-generation NFTs that can have both mutable data and metadata. Mutable data and metadata significantly extend their capabilities and allow them to evolve dynamically with new properties and restrictions over time. This makes MetaNFTs on-chain mutable storage entities that can interact with both on-chain and off-chain data. With broad support for existing and emerging NFT standards, MetaNFTs overcome existing limitations of current standards and allows developers to quickly adapt and integrate future ones.
This versatility allows NFTs to be used in a far wider range of applications: from art pieces that evolve with new properties over time to games where players can influence the game world to digital collectibles that can grow and change as they are cared for. Moreover, this can extend to financial solutions where MetaNFTs can represent asset-backed loans, investment opportunities, accounts, etc., with properties that can be changed depending on on-chain and off-chain information. A single MetaNFT can represent these use cases simultaneously and adapt to future use cases.
The Case for a Third-Generation NFT Standard
First-generation NFTs were introduced early in 2017 as unique on-chain identifiers that can be attached to a specific wallet. Transfer capabilities and properties have since been added to support more information stored within the NFT. However, once minted, these NFTs cannot evolve, as they are hard-coded and inherently static.
Second-generation NFTs introduced support for both on-chain and off-chain metadata. Each NFT is a unique unit of data linked to metadata representing digital and physical objects on-chain or off-chain and can provide an immutable proof of ownership. As such, these NFTs have been commonly used to create digital scarcity for digital assets — particularly for art and illustrations — as seen in the NFT boom of 2021. They’ve also gained popularity in play-to-earn games and have generated substantial excitement around nascent use cases such as royalty payments for artists, event ticketing, and loyalty programs.
These implementations of NFTs have been the best representations of specific things so far. This plays well to use cases like representations of digital art which led to the rise of NFT trading platforms or membership and access like Bored Ape Yacht Club NFTs. In these use cases, ownership is influenced by the defined set of traits that cannot be changed, manipulated or replicated.
They are limited, however, by the inability to change properties depending on internal or external parameters. Moreover, even with the introduction of metadata to supplement the NFT properties, these are often stored on external on-chain or off-chain sources, which may or may not be in direct control and custody of who owns the NFT.
In 2022, the industry shifted to utility use cases for NFTs. Building on top of existing standards’ inherent ownership capabilities allows NFTs to represent liquidity positions as introduced in Uniswap V3. Recent developments like Soulbound Tokens (SBTs), as proposed by Vitalik Buterin, represent an NFT that is locked to the wallet where it is minted and can represent identity verification, credentials (as achievements), and other owner-specific use cases. The introduction of NFTs with dynamic metadata by Chainlink (dNFTs) allowed for updating key metadata about the NFT itself, relying on both on-chain and off-chain sources and oracles to adjust this information dynamically. These developments demonstrated the potential for NFTs to serve a wide range of utility-led functions and change the conversation about what NFTs can do — more than just representation but ownership, identity, credentials, access and more.
The increased focus on utility has expanded the potential uses for NFTs and quickly opened the door to more utility-based discussions, such as evolving your static NFT into an avatar that could reflect an individual’s online identity. This same avatar could dynamically store a compliance record without exposing personal information and several other potential uses for NFTs.
However, there is a need to evolve the NFT landscape from first- and second-generation NFTs into the next generation that offers more capabilities. The first generation introduced static data within the NFT, and the second introduced metadata that could reference on-chain and off-chain information, which can be dynamically updated. Two challenges remain to evolve to the next generation of NFTs: the fractured use of metadata on-chain and off-chain and the increasing non-interoperable NFT standards developed to cater to specific use cases.
The Metadata Challenge
Most layer-1 blockchain networks have substantial constraints on block size. These constraints mean that the metadata (like an image, a link, etc.) linked to an NFT cannot be hosted directly on the blockchain where it lives or in the NFT itself. Instead, the NFT is coded with metadata that links it to the image file (or 3D model), which is stored off-chain using a hosting service like IPFS, Filecoin, or centralized storage solutions. Simply put, the representation of the digital asset is often not a single self-contained unit of information. The NFT asset is split between data and metadata within the NFT and the referenced metadata from on-chain and off-chain sources.
This presents a persistent issue working with NFTs as metadata segmented between on-chain or off-chain sources are subject to the availability and flexibility of the storage solutions used for these external data. This segmentation makes it difficult or, in many cases, not possible to develop more complex use cases utilizing NFTs.
Oracles have been a recent technological approach developed to address this challenge partially, as these can correlate data both on-chain and off-chain and provide a source of truth for metadata. Even with oracles, it is still a challenge to sort what data is immediately actionable, which is required to be stored on-chain, and what can be kept as part of metadata off-chain. To solve this challenge, the industry needs a solution to standardize how metadata is processed, stored and owned.
The proliferation of standards can compromise Interoperability
When Vitalik Buterin initially proposed the concept of Soulbound Tokens (SBTs), he presented use cases that were still (at the time) theoretical and discussed the limitations of these applications. Since then, multiple Ethereum Improvement Proposals (EIPs) have been developed for specific NFT use cases, building on the concept of SBTs.
Many organizations have started developing EIPs for specific NFT use cases such as royalties, renting, semi-fungibility, patents and intellectual property. Some companies are developing SBTs based on Metadata, which sometimes is pegged to off-chain centralized identity information.
However, the problems are being tackled at the symptom, not the source. Innovators must develop a sustainable tokenization engine that is adaptable enough to accommodate multiple compliance frameworks. They are not catering to the shifting requirements of the DeFi market and aren’t maintaining backward compatibility.
The tokenization of assets on-chain presents a unique opportunity for the industry, and the evolution of NFTs is at the center of this shift. Technology is progressing at an alarming rate. If it continues to develop in fractured silos, we risk market segmentation, which will create certain use cases incompatible with one another. For builders and developers using NFTs, this creates multiple standards in which they will have to learn, research and recycle ways to develop these variations. This presents an obstacle to efficiency and is conflicting for an industry that champions interoperability, composability and compatibility.
It is evident that without true versatility, most Web2 companies and institutions won’t be able to join the Web3 space in a frictionless and effective manner. A disruptive change is needed in developing and interconnecting the fractured uses of NFTs. This change is necessary for building a performant and distributed metaverse where a user’s metadata can evolve with their interactions and be modified and stored to reflect this. At the same time, this Metadata needs to be owned and managed by the user.
Nexera Protocol Proposes a Third-Generation NFT Standard That Addresses the Challenges of Metadata and Interoperability
The challenges presented by earlier generations of NFTs can be solved with a groundbreaking solution — the Nexera protocol. The latent issues with fractured metadata and non-interoperability have opened the door to a new generation of NFTs.
The Nexera Protocol has developed a system that allows for the easy creation of MetaNFTs that can have their properties (traits) added over time, like the inventory of a character in a videogame or the interest rate in a yield protocol. MetaNFT is a third-generation NFT standard that stores mutable data and metadata, can interact with both on-chain and off-chain sources, and dynamically update properties based on parameters triggered by the user or external sources. The standard aims to give control back to the user, so they are truly in custody, not just of their NFT but also the metadata attached. We call them MetaNFTs (mNFTs) since they are as versatile as metadata but fully stored on-chain.
MetaNFTs, by design, are user-centric data containers facilitating an on-chain system for storing data within the NFT identifier. Allowing NFTs to have mutable data and metadata allows for the storage of actionable metadata directly. Data and metadata can be modified, extended and evolved depending on external conditions.
This way, the user is in full custody of such data, and both smart contracts and protocols can interact with that information. This also means that the user can act with full self-sovereignty because they are in the custody of their data and don’t depend on external or third-party intermediaries to store, access, and hold them. This truly decentralized solution can power real decentralized use cases for NFT technologies.
Moreover, since referenced metadata stored in other on-chain or off-chain sources can be attached to the MetaNFT directly, this dramatically opens up a wider range of applications and can be applied to a wider array of business models.
The end game is to have a multi-purpose protocol that covers all use cases that require decentralized protocol interoperability. The standard opens up limitless extensibility, allowing for greater ease of use while promoting interoperability between various NFT standards and use cases.
In solving these challenges of fractured metadata and interoperability, MetaNFT will play a key part in ushering in the next wave of DeFi adoption.
Solving Metadata Challenges With MetaNFT
A MetaNFT can dynamically update itself based on properties and then store those properties in your ‘digital smart wallet.’ First-generation NFTs could only store a single static record, like wallet ownership of a Bored Ape Yacht Club artwork. Second-generation NFTs enrich static NFT data with metadata such as in-game features, items, or in-game land purchases.
A third-generation MetaNFT can store static NFT data and dynamically update metadata attached to an NFT based on users’ behaviors and interactions on-chain and off-chain. In the following illustration, a MetaNFT acts as a digital smart wallet with properties, tokens or other NFTs (SBTs, fractionalized NFTs, first- and second-generation NFTs) that can be updated, attached or detached dynamically depending on the activities of the user.
Solving Interoperability Challenges With MetaNFT
With the proliferation of EIPs and ERC standards for specific use cases and the necessity to use centralized entities that effectively hold customer records, it becomes challenging for users, institutions and builders alike to interact with each other in an interoperable yet decentralized way.
MetaNFTs are unique, self-contained units with information stored on-chain within the NFT. Moreover, MetaNFTs can be soulbound — meaning the NFT is locked with wallet-identity pair that minted it and cannot be transferred while being able to store other token specifications like ERC-20 tokens or NFTs attached to it. This design allows owners full custody over their assets and information and inherently makes it easier for smart contracts and protocols to interact with it, including evolving NFT standards.
As MetaNFT is rolled out across the board, interoperability between EIPs is enhanced, and builders don’t have to learn and re-learn EIP standards to suit specific functions. The MetaNFT acts as the interoperable layer connecting the various EIP standards and greatly improves usability and adoption.
Unlocking more use cases with MetaNFT
As discussed, MetaNFTs created through the Nexera protocol enable a lot of use cases that needed to be more straightforward to build or even possible before. One key use case is enabling decentralized compliance solutions for DeFi, and aiding in self-regulation for DeFi protocols and platforms.
Utilizing the soulbound token (SBT) specification and zero-knowledge proofs (ZKPs), users can generate proofs for their verified and authenticated information (via Know-Your-Customer and Know-Your Business checks, for example). Protocol builders and developers can then use these proofs to fulfill compliance requirements, enabling compliant access to their solutions.
Another potential use case is for the development of lending platforms. As mentioned previously, MetaNFTs can facilitate optional compliance requirements for the platform. MetaNFTs can also automatically execute the loan terms between the borrower and the lender. If the terms include a monthly interest payment, then the MetaNFT can be designed to automatically transfer interest payments from the borrower to the lender every month. If the loan is repaid earlier, then the MetaNFT can automatically transfer the remaining balance to the lender.
Furthermore, MetaNFTs can also power asset-backed lending platforms with the fractionalization of NFTs. In this use case, the MetaNFTs can use existing NFTs as collateral and fractionalize them into smaller NFT fractions that can be sold or auctioned directly or through an NFT marketplace platform.
The key benefit for users/wallet owners is that they can participate in these compliant solutions, with their identity information protected by SBTs and ZKPs. They are not sharing personally identifiable information, the only proof that they are over 18 years of age or don’t live in a specific country or region, without specifying their date of birth or country of citizenship, or residence. And as more protocols and solutions utilize the MetaNFT standard, this allows for ease of access between multiple platforms.
Builders and developers will benefit from the standardization of the storage of these metadata elements, building a consistent way of verification and enabling access without necessarily having to process personal information. Utilizing the MetaNFT standard will allow developers to support multiple token standards without developing custom interoperability solutions. This saves them time and development resources and hastens their time to market their solutions.
Furthermore, Nexera Protocol will release a front-end no-code interface for building MetaNFT use cases that can be set up quickly and easily. For even deeper integrations and implementations, a software development kit (SDK), as well as tooling, will be released in the future as well. This unlocks a tremendous amount of potential use cases built with the Nexera Protocol and can be applied to a range of industries in blockchain or even traditional or Web 2.0-based platforms looking to take advantage of blockchain technology.
The Nexera Protocol acts as middleware, providing companies and users with all the tools they need to enhance the utility of NFTs and the foundation to easily build decentralized applications that leverage NFTs that can be dynamic, mutable, and extensible. Through its core set of smart contracts, associated SDKs, and tooling, the Nexera Protocol powers a variety of use cases that leverage utility-centric NFTs. Having a solution with these capabilities is a revolutionary step that will act as a foundational bridge connecting decentralized and traditional finance, both at the institutional level and at the individual, builder and project levels.
Extending AllianceBlock Solutions With the Nexera Protocol
The Nexera Protocol will extend AllianceBlock’s end-to-end infrastructure as the core protocol that will bring our solutions even further. This will further decentralize AllianceBlock’s solutions, improve ease-of-use and enhance interoperability.
Nexera Protocol’s MetaNFTs will be integrated with AllianceBlock Trustless Identity Verification (TIDV) to process KYC/KYB checks and interface with multiple KYC providers. As already discussed in the use cases, TIDV can generate ZKPs based on authenticated data, and MetaNFTs will be able to attach this as a property.
Taking this even further, MetaNFTs will also enable the execution of the Cross-Border Rules engine, which enables the setting up of rules and restrictions in compliance with international and local anti-money laundering and anti-fraud measures.
Bringing this to life, users with a MetaNFT can undergo KYC in TIDV and generate ZKPs, which can be attached to their MetaNFT. With this MetaNFT, users can access AllianceBlock’s solutions and participate compliantly.
Fundrs’ integration of MetaNFTs can simplify verifying compliance eligibility and enable users to participate in compliant fundraising rounds. Users can access permissioned and semi-permissioned campaigns on DeFi Terminal. On the Data Tunnel, users can upload or access certain data sets that can be verified as coming from an authorized source.
The Nexera Protocol and MetaNFTs will be utilized across the AllianceBlock suite of products enabling efficient cohesion. Stay tuned for these product-specific deep dives.
MetaNFT Is How AllianceBlock Will Build the Seamless Gateways Between TradFi and DeFi
MetaNFTs offer the potential to become the digital representation of a person’s identity, the inventory of assets they own, and the record of every interaction performed on-chain while maintaining optimal privacy. MetaNFTs provide a facility for on-chain storage that can have a transformational impact on multiple industries, giving control back to the individual, improving the safety and security of users and institutions, and onboarding the next wave of Web 2.0 users into DeFi.
With the Nexera Protocol, AllianceBlock is providing the infrastructure that will enable businesses of all sizes to leverage the full potential of MetaNFTs, without needing prior knowledge of blockchain or smart contracts.
The Nexera protocol benefits users, institutions, builders and projects alike. Providing an SDK allows easy access to this groundbreaking innovative technology and sets the standard for third-generation NFTs with MetaNFTs. Interoperability, adoption, compliance, regulation and ease of access have always been core principles for AllianceBlock, and the Nexera Protocol is the culmination of these values. This ease of access, relative ease of adoption and the open source nature will suit traditional financial institutions who want to onboard into DeFi but have been waiting for the right technology or solution.
MetaNFT is the right technology, and the Nexera Protocol is the right solution at the right time. With AllianceBlock’s interoperable suite of products, this combination will be the most comprehensive and extensible way of bridging the gap between DeFi and TradFi, ushering in a new wave of blockchain adoption focused on privacy, security and self-custody.
About AllianceBlock
AllianceBlock is an infrastructure provider for decentralized tokenized markets. It empowers businesses with liquidity provisioning and allows them to compliantly issue, manage, and trade tokenized, digital assets including real-world assets (RWAs).
The AllianceBlock ecosystem of partners, clients, and ventures consists of top stakeholders from the financial industry, as well as the decentralized finance (DeFi) sector. Their unique product suite complies with global regulations and seamlessly integrates with legacy systems.
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