Deep Dive into Double Protocol
Background, ERC-4907 & ERC-5006, how it works, use cases and benefits of Double Protocol.
With the ascent of DeFi came the possibility to lend & borrow crypto assets. I guess since NFTs are tied to cryptocurrencies, it wasn't going to be long before it became possible to lend and borrow them too.
Some platforms are already in the game of renting NFTs but our focus in this article is on a platform called "Double Protocol."
WHAT IS DOUBLE PROTOCOL?
Double Protocol is an NFT rental marketplace. It is a decentralized platform where NFT owners can list their utility NFTs for lending and people can rent the NFTs. I know we're used to attaching the words "NFT" and "marketplace" to trading of NFTs but Double Protocol is moving in another direction by making it possible to rent NFTs. I mean, what's the point of being the owner of an asset if you can't rent it for some quick cash, right?
Background:
Double Protocol was founded in 2019 by Shrug Newton. The team raised $1.5 million in seed round in March 2022. They are backed by a total of 12 investors. Double Protocol is deployed on the Ethereum and BNB Chain.
"An NFT rental marketplace"
A question popped in my mind when I first came across this description. "Does it mean one can rent out any of their NFTs on this platform?"
I bet this question also crossed your mind. Well, I found your answer.
Technically, you can't just rent out any NFT on Double Protocol. The NFTs have to adopt the ERC-4907 or ERC-5006 token standard proposed by Double Protocol in order to be rentable.
This brings us to our next question. What is ERC-4907 and ERC-5006?
WHAT IS ERC-4907?
ERC-4907 is a token standard proposed by Double Protocol. It is an extension of the ERC-721 (which is the normal token standard for Ethereum based NFTs) that gives NFTs the ability to be rentable. That is, projects first have to implement the ERC-4907 standard in their NFTS to make them become rentable.
Usually, for this to be possible, you'd assume a lot of upgrades need to be done on the smart contract. However, Double Protocol has an easier way, which is by introducing two roles (owner role & user role) to the ERC-721 NFTs called "Dual Roles."
This Dual Role is what gives renters the permission to use the NFTs but not the ability to transfer ownership of the NFTs. Dual Role distinguishes the users' roles from the owners' roles. With the ERC-4907 implementation, rights are also assigned which means there are certain things the renters can't do with rented NFTs.
There's also the expire function which allows owners to set expiration dates (rental periods) for their NFTs. Also, once an NFT project implements the ERC-4907, their NFT collection will be automatically listed on the Double marketplace.
So, basically, ERC-4907 allows NFTs to be rented, borrowers to use the NFTs for certain purposes and expiry dates to be set for rented NFTs.
The proposal for the ERC-4907 was approved in June 2022. Player One World (a multi-chain metaverse project) was the first to implement the ERC-4907 in their platform in July 2022.
Asides the ERC-4907, there's also ERC-5006 which is an extension for ERC-1155 token standard created by the Double Protocol team. By the way, ERC-1155 is a multi token standard for both fungible tokens and NFTs.
ERC-5006 is a standard that makes NFTs rentable as well. It works just like the ERC-4907. Double Protocol supports NFTs that implement both the ERC-4907 and ERC-5006 standards.
Now that we've understood what makes NFTs rentable, how does the Double Protocol work.
HOW IT WORKS
Listing/Lending NFTs on Double Protocol
🔹️ Visit the Double Protocol website.
🔹️ Click the "Lend NFTs" button or the "List Now" button you'll see when you scroll down and connect a wallet from the options given.
The NFTs you own in that wallet will be shown.
🔹️ Select the NFT you wish to lend. Click "Lend."
🔹️ Enter the price you wish to rent your NFT for.
It's a daily basis rental system so you'll have to input the daily rent you want borrowers to pay. Then click "Lend."
🔹️ You'll be taken to a page which contains the rental information like rental period, price, etc.
After checking that the details are accurate, click "Confirm."
🔹️ Once it has been recorded on-chain, you've successfully listed your NFT for rental. The NFT will be displayed on the Double marketplace for people to start renting.
🔹️ You can change the rental information by clicking "Edit Order" and you can also cancel the rental.
Renting of NFTs on Double Protocol
🔹️ Click on the "Explore" button or the "Rent Now" button you'll see when you scroll down. Of course, you'll be asked to connect your wallet.
🔹️ You'll be taken to another page which shows a list of different NFTs from different collections and from various chains.
🔹️ When you select an NFT from the list, you'll see rental information like rental period, daily rental price, etc.
🔹️ Click "Rent". Set the rental time (the period of time you'll need the NFT for. Click "Rent" again.
🔹️ Confirm that the lease information is accurate. Once you click "Rent", you'll be notified in your connected wallet to approve the transaction. The rent fee will be deducted from your wallet.
It is calculated by multiplying the daily price of the NFT you're renting by the number of days you'll be leasing it for.
🔹️ Once transaction is approved, you've successfully rented the NFT. You can even see your wallet address among the list of addresses in the rental history of that particular NFT.
Note: Once the rental period expires, NFTs automatically become unusable by renters. They don't have to perform any activity on their end. This is possible because of something called "doNFT" created by Double Protocol to be able to track every rental NFT usage time.
The doNFT is given to the renter once the rent is paid and confirmed. So that once the rental period is over, the doNFT is triggered and the NFT automatically can't be used again by the borrower.
Did you notice that in all of the above listed steps, there was no mention of collateral?
Well, I noticed (but I guess that doesn't count since I wrote the article). Anyways, collateral isn't in the picture because Double Protocol doesn't require renters depositing collateral in order to rent NFTs.
There are some NFT rental protocols that require users to deposit collateral before being able to rent NFTs, so that, in a situation where they don't pay back on time, the collateral will be liquidated to recover the loan.
However, NFT rental platforms like Double Protocol don't require collateral because instead of the real NFT, a wrapped version of the NFT is what is being issued to the renters.
USE CASES OF RENTED NFTs
It is worth noting that the kind of NFTs that are rentable on Double marketplace are utility NFTs like in-game assets, metaverse NFTs, digital arts, virtual lands, etc.
Below are some use cases of rented NFTs.
⚡️ Subleasing:
Rented NFTs (like virtual lands) can be leased on the metaverse to earn some money.
⚡️ Financial derivates:
Rented NFTs (like in-game characters) can be used to participate in play-to-earn games and win in-game tokens or other items.
⚡️ Rented NFTs can be used to receive benefits which only holders of the NFTs can have access to.
⚡️ Some borrowers even rent NFTs just for bragging rights.
BENEFITS OF DOUBLE PROTOCOL FOR NFT OWNERS (LENDERS)
🔸️ NFT owners earn passive income by renting their NFTs.
🔸️ Rented NFTs are secured as ownership rights are not transferred to the renters.
🔸️ Owners can batch list their NFTs for rent.
🔸️ Owners get control of their listings.
BENEFITS OF DOUBLE PROTOCOL FOR RENTERS
🔸️ Renters don't need to deposit collateral to rent NFTs.
🔸️ Double Protocol utilizes automatic expiration such that renters don't have to go through the hassle of returning NFTs after the rental period is over. It automatically expires.
🔸️ Renters can make use of the NFTs immediately it's rented. There is no waiting period.
🔸️ Renters can rent out NFTs they rented from Double Protocol to earn more income.
BENEFITS OF DOUBLE PROTOCOL FOR NFT PROJECTS
🔸️ Creates more utility for NFT project.
🔸️ The ERC-4907 & ERC-5006 standards can be deployed on NFTs with a single click.
🔸️ Attract more users to your NFT project because when people realize that they can earn by renting out their NFTs, they'll want to mint & hold the NFT.
PARTNERSHIPS:
Since its launch, Double Protocol has partnered with a lot of web3 projects to help them adopt the ERC-4907 & ERC-5006 and integrate NFT rental solutions into their platforms. Some of these web3 projects are Zenith Chain, X-Consoles, Cloud City, Glip, Afflux, Uniblock, Infinity Arena, Trystards, Sacred Tails, TomoChain, HOME Verse, Shardeum, OlandBox, CEBG, XRUN, Xander, MetaForest, Amnol Network, and many more.
We've come to the end of this article and I hope I've been able to give you an insight on what rentable NFT implies.
This article is purely meant for educational purpose and NOT a financial advice.