ERC-721R NFT standard_ a new standard against NFT-Rug pull

Earlier this month, a new token token standard, namely the ERC-721R made its debut onto the NFT and blockchain space at large. Dubbed the “anti-rug-pull standard,” it was introduced as a way to combat the rise of fraudulent projects in the NFT community.

On the heels of successful releases such as Bored Ape Yacht Club (BAYC) and Crypto Punks, a ton of projects have swarmed the market for non-fungible tokens. However, the NFT industry is still in the relatively early stages of growth and because of this, it lacks certain core structures such as security and regulation. In recent times NFTs have been painted in a rather unfavorable light.

Platforms are being flooded with projects designed to dupe customers. The term “rug pull” has been thrown around with alarming frequency. A rug pull occurs when malicious creators of a project abandon it midway, taking off with customer funds.

The Baller Ape Club Rug Pull

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These individuals leverage the appeal of the NFT space, which of late has been driven by FOMO, that is fear of missing out. One of the biggest rug pulls in NFT history occurred in October last year after a project called Baller Ape Club went live. Clearly a BAYC ripoff, the collection featured 5000 distinctive Apes with a mint price of 2 SOL.

It was promoted as Solana’s version of BAYC at the time and soon after its launch, the collection was sold out. Following this, the creators shut down all of the project’s social media accounts; Discord, Twitter, and the websites as well. They had made off with investor funds totalling about $2 million.

This is just one incident out of several, it's also important to consider that this is not the only fraudulent method there is. Earlier this year OpenSea, the world’s largest NFT marketplace revealed that a huge quantity (over 70%) of the tokens created with its free minting tool are either fake, plagiarized, or simple scams.

Additionally, as stated earlier the framework for the NFT industry is yet to be defined. Collections have tanked mere hours after their release due to a lack of utility or certain flawed mechanisms. Essentially, collectors' funds are nearly constantly at risk.

How ERC-721R Comes Into Play

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The anti-rug pull token standard allows for the inclusion of a refund function in the smart contract of NFTs.

How it works is that when a buyer mints a non-fungible token from a collection that implements the token standard, the smart contract retains their money for a specified waiting period. Until the time passes, the seller will not be allowed to withdraw their earnings.

The delay gives the collector time to return the non-fungible token and be reimbursed if the NFT does turn out to be a scam. The only loss here would be the gas fees for the purchase which typically vary based on the blockchain. This standard has advantages for buyers, creators, and the NFT space as a whole.

For buyers, it reduces the risk generally associated with an NFT purchase and shields them from losses in the event of a rug pull. Looking from the seller’s end, ERC-721R increases credibility and accountability. Utilizing ERC-721R means a customer can simply get a refund if a project takes a nosedive. Creators will likely work towards infusing their projects with greater quality and utility to avoid an unsuccessful launch.

Although the token standard might simply appear to place a burden on creators instead, it does give them an ample amount of control over other features. They get to choose the length of the waiting period and can also set the refund fee lower than the mint price. Customers get a portion of their investment back and the creators still make some profit.

What this Means for NFTs Generally

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The new token standard also has the potential to reintroduce NFTs, portraying them as legitimate investments. Increased consumer faith is a surefire way to bolster the market for non-fungible tokens and ensure continuity. Additional benefits include that with refunds still on the table, the floor price for an NFT probably won’t decrease. Also, when short-term flippers exit projects, the assets themselves retain their high value.

Other token standards that have been implemented so far include ERC-721 which was the original and ERC-721A which was built with ERC-721 as its base. ERC-721R on the other hand has ERC-721A at its core. Before we move on, let’s take a quick look at what ERCs are;
The term ERC stands for Ethereum Requests for Comments. These can be described as documents written by smart contract programmers who utilize the Ethereum blockchain network. ERCs essentially contain guidelines for the associated token or asset. ERC-721 for example, allows for the uniqueness of NFTs while ERC-721A introduces cost-friendly capabilities.

Is it all Positive News Surrounding ERC-721R?

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The answer to this is no.

To begin with, the ERC-721R token standard was developed by the individuals behind a P2E game known as CryptoFighters Alliance. On the 10th of April, the team made a Twitter post discussing a standard for non-fungible tokens that they had just created.

Their post drew a lot of attention eliciting both negative and positive responses. One of the most interesting things of note is that before a post in mid-2021, the team’s Twitter account had been inactive since 2018. The CryptoFighters project had been neglected hitherto, but the team has leveraged its longevity as proof of credibility.

Sales have seen a steady rise since January with the project selling 13 tokens in a week at some point as shown by nft stats. However, the lengthy hiatus does raise questions about the team’s commitment.

Flaws in ERC-721R’s Design

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Additionally, some Twitter users claim to have noted significant flaws in the design of the new token standard. In particular, an account called Popeye with nearly 150k followers has pointed out that the concept wasn’t practical. Apparently, ERC-721R could allow buyers to max mint and then simply request reimbursement as soon as they were unable to flip their tokens for above the floor price.

This could be harmful to genuine creators, however, as mentioned earlier they do get to set their refund rates and can ensure it’s not a total loss. Another potential oversight is the possibility that fraudulent programmers could include a withdrawal function to bypass the waiting period for the refund.


The developers of the token standard have warned that the project is still undergoing beta testing and has forthcoming reviews.

Conclusion

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At the moment, given the many reactions to its introduction, it isn’t possible to predict how ERC-721R will fare in the long run. The creators have noted in the token standard’s GitHub code repository, that it will likely witness more advanced applications later on. These include;

• Vesting
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• This feature will enable creators to access a portion of the withheld funds monthly.
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• Cliffs
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• This feature grants creators instant access to 10% of the funds with the remainder scheduled for release in the future.

In light of its core function and these added possibilities, ERC-721R does have the potential to give rise to the necessary change. However, as many have pointed out it may not exactly be up to industry standard. Will it experience large-scale adoption? Or will it fade into the background like several other developments in this still-emerging, volatile space that forms the foundations of a future in web3? Only time will tell.



Author: Gate.io Observer M. Olatunji
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