The future brought by dynamic NFT(dNFT): Practical applications of metadata-based innovation

Reasons Why dNFTs Are Truly Necessary

Looking at the existing NFT market, most assets are static. Whether it’s bored ape(Bored Ape) or CryptoPunks(Punks), once issued, they never change. However, the situation is different in the worlds of finance and gaming.

Most real-world assets are actually non-fungible. When you look at the asset and liability statements of large corporations like Walmart, you’ll find numerous assets with unique characteristics, such as real estate, derivatives, and special contracts. Each has different maturities, interest rates, and counterparties. How are these assets represented on the blockchain today? The answer is dynamic NFT(dNFT).

Static NFT vs. Dynamic NFT: What’s the Difference?

Traditional NFT(static NFT) has fixed metadata at the time of creation. Images, descriptions, and attributes never change. But dNFTs are different.

The core of dNFTs is that their metadata updates in real-time based on external conditions. They change automatically according to rules embedded in smart contracts and data provided by oracles. This enables:

• Real-time updates of fee information
• In-game character level ups/downs
• Deduction of remaining uses on membership cards
• Extension of expiration dates
• Changes to underlying assets

and more.

Practical Examples

Innovation of Uniswap v3

Uniswap v3 best demonstrates the potential of dNFTs. It represents liquidity provider(LP) positions as NFTs, with metadata storing fee tiers, price ranges, pool IDs, position sizes, and earned fees. When a user sells the NFT, they are trading their liquidity position; returning it to the protocol means reclaiming the provided liquidity and accumulated fees over the entire period. This is not just a graphic asset but a receipt of a real financial position.

Solv Protocol’s Financial Certificates

Solv issues certificates of attribution, convertible certificates, and bond certificates using ERC-3525-based dNFTs. Unlike ERC-20 tokens, which require deploying a new contract for parameter changes, dNFTs can manage many assets with different parameters under a single contract. Additionally, SVG images are dynamically generated on-chain based on data, ensuring the authenticity of information.

Swell Network’s Staking

Swell Network’s swNFT allows users to trade and expand their positions without ending their ETH staking. When used together with swETH, it maximizes profitability while maintaining liquidity.

In-Game dNFTs

Games like Wolf Game and Pak’s Merge project show how dNFTs interact within gaming. They change attributes of other NFTs based on game rules or automatically merge NFTs within the same wallet. Games are an ideal environment for testing new technologies because they allow rapid iteration with less security and regulatory burden.

Current Challenges

Limitations of Metadata Display

In the early days of Uniswap v3, unfortunate incidents occurred frequently. For example, someone sold LP positions at very low prices in bulk, often because many people didn’t realize these NFTs represented actual assets. The current metadata display methods on NFT marketplaces are insufficient to accurately describe complex financial positions.

Separation of On-Chain Data and Metadata

For example, if an LP position is traded across x, y, z price ranges, and the owner updates the range multiple times based on market conditions? Simply relying on timestamp data isn’t enough. It’s impossible to connect which prices corresponded to which ranges.

The same applies to game characters. They exist from level 1 to 10, but without metadata snapshots, you can’t calculate the average price per level. Currently, there’s no way to link trading data with changes in metadata.

Balancing Security and Cost

Since metadata defines assets, protecting it is as important as safeguarding ownership. Storing it on centralized servers is cheaper but less transparent. On-chain storage is secure but incurs high gas costs, especially with every major change.

Future Directions

dNFTs are not just collectibles or art pieces. The truly valuable aspect of dNFTs is their complex and dynamic metadata.

Many assets in the financial system are non-fungible, and dNFTs will play a key role in tokenizing these assets. In the future, marketplaces are expected to become more segmented based on different types of dNFTs, and building infrastructure capable of properly displaying complex metadata and linking it with trading data is urgent.

If these technical challenges are addressed, dNFTs will not just be a blockchain trend but will serve as a foundational technology to reshape the entire finance and gaming sectors.