NFTs are static receipts. Today's ERC-721 standard defines a token pointing to an off-chain JPEG, creating a brittle link vulnerable to link rot and lacking intrinsic utility.
legal-tech-smart-contracts-and-the-law
Blog
The Future of Digital Ownership: Beyond the NFT Token Itself
An analysis of why current NFT legal structures fail to capture value, arguing that separable, licensable intellectual property rights are the true asset class, not the token metadata.
introduction
THE STATE
Introduction
Current NFTs are primitive tokens of proof, but the future of ownership is dynamic, composable, and utility-driven.
Ownership must be programmable. The next evolution moves from a static token to a composable asset container that holds rights, royalties, and logic, as seen in ERC-6551 token-bound accounts.
Utility drives value over scarcity. Projects like Aavegotchi demonstrate that an NFT's value stems from its on-chain utility and composability, not just its metadata or rarity score.
Evidence: The ERC-6551 standard enables any NFT to own assets and interact with dApps, transforming it from a collectible into an autonomous on-chain agent.
thesis-statement
THE EVOLUTION
Thesis Statement
Digital ownership will shift from static token possession to dynamic, composable rights management, decoupling the asset from its representation.
Ownership is a bundle of rights. Current NFTs are monolithic tokens that conflate representation with utility, creating friction for composability and upgradeability.
The future is a rights registry. Projects like ERC-6551 and ERC-404 demonstrate the initial separation of token-bound accounts and fractional ownership from the base asset.
The token becomes a pointer. The NFT will evolve into a lightweight key that references an on-chain state machine managing permissions, revenue streams, and access controls.
Evidence: The $1.2B in volume for ERC-404 tokens and the integration of ERC-6551 by platforms like Aavegotchi and Decentraland validate market demand for programmable ownership layers.
key-trends
THE FUTURE OF DIGITAL OWNERSHIP
Key Trends: The Great Unbundling
The NFT is being deconstructed into its core components: the token, the media, the rights, and the utility. The future is composable, dynamic, and on-chain.
01
The Problem: Static JPEGs with No Utility
Most NFTs are dead endpoints—static tokens pointing to off-chain metadata. They are illiquid, non-composable, and fail to generate ongoing value for holders.
- Off-Chain Risk: ~90% of NFTs rely on centralized storage (e.g., IPFS, Arweave) for metadata, creating a single point of failure.
- Zero Utility: No inherent programmability or revenue share beyond speculative resale.
- Fragmented Rights: Legal ownership is often disconnected from the on-chain token.
~90%
Off-Chain Risk
0%
Native Yield
02
The Solution: Dynamic, On-Chain Compositions
Projects like Art Blocks and Fidenza pioneered generative on-chain art. The next wave uses the NFT as a composable state layer for games, DeFi, and social graphs.
- Fully On-Chain: SVG/HTML stored directly in contract code, ensuring permanent verifiability.
- Composability as a Feature: NFTs become inputs for DeFi (NFTfi, Blend), gaming (Loot derivatives), and new media (Async Art).
- Dynamic Rendering: Token appearance and traits update based on on-chain activity or holder actions.
100%
On-Chain
10x+
Composability
03
The Problem: Centralized IP & Licensing Black Box
Traditional NFT licenses (e.g., CC0 vs. commercial rights) are opaque, non-machine-readable, and unenforceable on-chain. This stifles derivative creation and real-world utility.
- Legal Ambiguity: Rights are defined in off-chain PDFs, not smart contracts.
- No Royalty Enforcement: Marketplaces like Blur and OpenSea have deprecated creator fee enforcement, breaking the economic model.
- Holder Passivity: Owners cannot easily license or monetize their IP programmatically.
-98%
Royalty Compliance
0
On-Chain Licenses
04
The Solution: Programmable Rights with ERC-721C & Beyond
New token standards like ERC-721C (Creator Royalties) and ERC-6551 (Token Bound Accounts) unbundle and encode rights directly into the asset's logic.
- On-Chain Enforcement: Royalty rules and commercial terms are executed by the smart contract, not the marketplace.
- Token-Bound Accounts (TBA): Each NFT gets its own smart contract wallet (via ERC-6551), enabling asset ownership, interaction, and revenue aggregation.
- Modular Rights: Licenses become transferable, composable sub-assets that can be traded separately from the core NFT.
ERC-6551
Standard
100%
Contract Enforcement
05
The Problem: Illiquid, Idle Capital Sinks
High-value NFTs (e.g., BAYC, CryptoPunks) represent billions in locked, non-productive capital. They are financial liabilities, not assets, for holders.
- Zero Yield: Idle assets in wallets generate no return, only carrying cost and risk.
- Fragmented Collateral: Difficult to use as unified collateral in DeFi without risky, centralized wrapping services.
- No Cash Flow: Ownership is purely speculative, with no mechanism for value accrual outside of price appreciation.
$10B+
Idle Capital
0% APY
Native Yield
06
The Solution: NFT Fractionalization & DeFi Primitives
Protocols like NFTfi (loans), BendDAO (NFT-backed stablecoins), and Tessera (fractionalization) turn NFTs into productive financial assets.
- Fractional Ownership: ERC-20 tokens representing NFT shares enable liquid markets and lower entry costs.
- NFT-Fi: Use NFTs as collateral for loans, generating yield for lenders and liquidity for holders.
- Revenue-Sharing Models: NFTs can be programmed to distribute fees from derivative projects or commercial use directly to holders.
1000x
Liquidity Increase
5-15%
Loan APY
ON-CHAIN VS. OFF-CHAIN ENFORCEMENT
The Legal Wrapper Spectrum: From Hopeful to Enforceable
Comparing legal frameworks for digital assets based on their enforceability, jurisdiction, and integration with the underlying NFT.
| Feature / Metric | Pure On-Chain (e.g., Art Blocks) | Hybrid Smart Contract (e.g., Arweave, Story Protocol) | Off-Chain Legal Agreement (e.g., IPwe, traditional IP) |
|---|---|---|---|
Primary Enforcement Mechanism | Code is Law | Smart Contract + Legal Arbitration | Court System |
Jurisdictional Clarity | None (Global, Unclear) | Specified in Legal Wrapper | Defined by Governing Law Clause |
Integration with NFT Token | Direct (Immutable) | Token-Gated Access to Terms | Separate Document (Referential) |
Royalty Enforcement Capability | On-chain fee mechanism only | Programmable splits with legal recourse | Requires manual legal action |
Dispute Resolution Time | < 1 block | Days to weeks (Arbitration) | Months to years (Litigation) |
Cost to Enforce Rights | Gas fee only | Gas fee + Arbitration fee | $10,000 - $500,000+ in legal fees |
Immutable Record of Terms | |||
Example Use Case | Generative Art PFP | Licensed Music NFT, Decentralized IP | High-Value Patent or Trademark NFT |
deep-dive
THE COMPOSABLE ASSET
Deep Dive: The Anatomy of a Separable Rights NFT
Separable Rights NFTs decompose ownership into distinct, tradable components, moving beyond the monolithic token model.
Separable Rights NFTs decompose ownership into distinct, tradable components. This moves beyond the monolithic token model where a single NFT holds all rights. The ERC-721 standard is insufficient for this granularity, requiring new tokenization layers.
Commercial rights separate from the token itself. Projects like Ethereum's ERC-721C enable programmable royalty splits, while Solana's Metaplex Core allows creators to retain mutable metadata control. This creates a secondary market for licensing.
Governance rights become liquid assets. A holder can sell voting power for a DAO like Nouns without selling the underlying NFT. This separates social capital from aesthetic value, a concept pioneered by fractionalization protocols like Fractional.art.
The token becomes a shell for a bundle of rights. The ERC-6150 standard formalizes this by nesting child assets within a parent NFT. This architecture enables complex financial products where each right has its own liquidity pool.
protocol-spotlight
THE FUTURE OF DIGITAL OWNERSHIP
Protocol Spotlight: Building the IP Infrastructure
NFTs were just the first step. The next evolution is programmable, verifiable, and composable intellectual property infrastructure.
01
The Problem: Static Metadata is a Dead End
Today's NFTs are glorified JSON pointers. The art, music, or game asset they represent is hosted on a centralized server, creating a single point of failure and censorship. This defeats the purpose of on-chain ownership.
- Key Risk: Link rot and rug pulls where the hosted content disappears.
- Key Limitation: No dynamic behavior; the asset is a frozen snapshot.
~40%
At Risk
0
Interactivity
02
The Solution: On-Chain Renderers & Verifiable Compute
Protocols like Art Blocks and 0xDEAFBEEF pioneered storing generative code on-chain. The next wave uses verifiable compute (e.g., RISC Zero, Jolt) to render complex media or execute logic, with the proof stored on-chain.
- Key Benefit: True permanence; the asset's essence and logic are immutable.
- Key Benefit: Provable, dynamic behavior (e.g., art that changes based on time or holder).
100%
On-Chain
ZK-Proven
Execution
03
The Problem: IP Licensing is a Legal Minefield
"Ownership" of an NFT rarely includes commercial rights. Projects like Bored Ape Yacht Club grant limited licenses, but enforcement is off-chain and manual. This stifles derivative creation and commercial utility.
- Key Friction: No automated, on-chain royalty enforcement or rights management.
- Key Risk: Legal ambiguity chills developer innovation and brand partnerships.
Manual
Enforcement
High Friction
Compliance
04
The Solution: Programmable Rights with Token-Bound Accounts
Standards like ERC-6551 turn every NFT into a smart contract wallet (a Token-Bound Account). This enables on-chain, automated licensing logic. The NFT itself can hold assets, sign agreements, and distribute fees.
- Key Benefit: Royalties and terms are enforced by code, not lawyers.
- Key Benefit: Enables complex, composable IP stacks (e.g., a character NFT that earns from game usage).
Auto-Enforced
Royalties
Composable
IP Stacks
05
The Problem: Silos Kill Interoperability
A game skin NFT is useless in a virtual world, and a digital fashion item can't be worn across platforms. This fragmentation destroys utility and liquidity, trapping value in walled gardens.
- Key Limitation: Assets are locked to a single application or virtual environment.
- Key Consequence: Reduces the total addressable market for any single digital asset.
Fragmented
Markets
Low Liquidity
Per Asset
06
The Solution: Cross-Environment Asset Standards
Initiatives like the Open Metaverse Alliance (OMA3) and IERC-7579 (Minimal Viable Token) are defining cross-platform standards. The infrastructure layer will be intent-based bridges and universal renderers that understand these standards.
- Key Benefit: An asset's state and properties are portable across games, VR, and social apps.
- Key Benefit: Unlocks network effects and composability at the asset level, not just the financial level.
Portable
State
Network Effects
Unlocked
counter-argument
THE MISSING LAYER
Counter-Argument: "But CC0 and Community Are Enough"
CC0 licensing and community sentiment are insufficient for durable digital ownership without enforceable on-chain property rights.
CC0 is a legal tool, not a technical primitive. It relinquishes copyright but creates a public domain free-for-all, where the original asset's value is diluted by derivative spam. This model works for viral memes but fails for assets requiring scarcity and provenance.
Community is a social construct vulnerable to capture and collapse. Relying solely on shared narrative for value is the Web3 equivalent of a pump-and-dump. True ownership requires programmable rights that persist beyond Discord sentiment, managed by smart contracts.
The evidence is in the data. Projects like Nouns DAO (CC0) rely on their DAO treasury for cohesion, not the IP itself. Contrast this with ERC-6551 token-bound accounts, which embed enforceable property rights directly into the NFT, creating a verifiable on-chain identity for assets and their derivatives.
risk-analysis
THE FRAGILE PIPELINE
Risk Analysis: What Could Go Wrong?
The future of digital ownership depends on more than just the NFT token; it's a fragile pipeline of off-chain assets, metadata, and evolving standards.
01
The Link Rot Problem
Over 95% of NFTs rely on centralized, mutable HTTP URLs for their core asset (image, video). This creates a single point of failure. If the hosting provider (e.g., AWS S3, IPFS pinning service) goes down or the creator stops paying, the NFT's value evaporates. Projects like Arweave and Filecoin offer permanence but adoption is not universal.
- Risk: Centralized failure of asset storage.
- Impact: Permanent loss of the owned digital object.
>95%
Centralized Risk
$10B+
Assets at Risk
02
The Metadata Mismatch
NFT metadata (traits, descriptions) is often stored separately from the asset and can be altered or frozen. This breaks the promise of immutable provenance. Dynamic NFTs and evolving standards like ERC-6551 (token-bound accounts) introduce programmability but also new attack surfaces for logic exploits.
- Risk: Logic bugs or admin keys compromising metadata integrity.
- Impact: Unauthorized changes to the NFT's properties or history.
ERC-6551
New Attack Surface
Dynamic
Complexity Risk
03
The Standardization Chasm
Fragmentation across chains (Ethereum, Solana, Bitcoin) and standards (ERC-721, SPL, Ordinals) creates walled gardens of ownership. True cross-chain composability is a myth without secure, decentralized bridges. Projects like LayerZero and Wormhole attempt to solve this, but introduce bridge security as a new systemic risk.
- Risk: Bridge hacks or chain-specific failures isolate assets.
- Impact: Illiquidity and inability to use assets across ecosystems.
$2B+
Bridge Hacks (2022)
Multi-Chain
Fragmentation
04
The Legal Grey Zone
On-chain ownership does not equate to enforceable intellectual property (IP) rights. Most NFT projects grant only a limited license, not copyright. Legal frameworks are lagging, creating uncertainty for high-value assets. The DAO model for collective ownership (e.g., PleasrDAO) further complicates legal liability and decision-making.
- Risk: Legal action nullifying perceived ownership rights.
- Impact: Inability to commercially exploit or defend owned assets.
Limited
License Standard
DAO
Liability Risk
05
The Rendering Inconsistency
How an NFT is displayed (in wallets, marketplaces, games) depends on the viewer's interpretation of the metadata. There is no canonical renderer. This leads to visual bugs, broken experiences, and potential for malicious rendering (e.g., hiding traits). Projects must rely on the goodwill of centralized platforms like OpenSea to display assets correctly.
- Risk: Visual representation decouples from on-chain state.
- Impact: Degraded user experience and potential for fraud.
OpenSea
Centralized Gatekeeper
No Standard
Renderer
06
The Composability Time Bomb
NFTs are increasingly used as keys to other assets (DeFi, gaming, social). This creates a dependency graph of smart contract risk. A vulnerability in a downstream protocol (e.g., a lending market like NFTfi or a game like Parallel) can cascade, locking or destroying the utility of the underlying NFT.
- Risk: Systemic failure from interconnected protocol risk.
- Impact: Loss of utility and secondary value of the NFT.
DeFi
Protocol Risk
Cascading
Failure Mode
future-outlook
THE VALUE LAYER
Future Outlook: The IP Liquidity Layer
The future of digital ownership is the separation of NFT art from its underlying intellectual property rights, creating a new liquidity market for creators and collectors.
IP is the real asset. The JPEG is a receipt; the commercial rights are the underlying cash flow. Protocols like Story Protocol and Arianee are building registries to tokenize these rights separately, enabling fractional ownership and licensing.
This creates a secondary market for utility. A Bored Ape's IP can be licensed for a film while the NFT remains in a wallet. This mirrors traditional IP finance but with global, instant settlement on-chain.
The counter-intuitive insight: High-value NFTs become collateralized debt positions. Owners borrow against future IP royalties via platforms like Arcade.xyz without selling the underlying token, unlocking liquidity without market dilution.
Evidence: The $40B+ annual global IP licensing market demonstrates latent demand. On-chain, projects like Yuga Labs' Otherside already experiment with embedded commercial rights, proving the model's viability for large-scale ecosystems.
takeaways
THE FUTURE OF DIGITAL OWNERSHIP
Takeaways for Builders and Investors
The next wave of value accrual will be in the infrastructure that makes NFTs composable, verifiable, and useful, not just in the token standard itself.
01
The Problem: Static NFTs are Illiquid, Dead Capital
A $1M Bored Ape is a frozen asset. Its value is trapped, unusable for DeFi without risky, centralized wrapping services that break native utility and royalties.\n- Solution: Native, verifiable fractionalization protocols like tensorplex and NFTfi enable trustless lending and liquidity pools.\n- Impact: Unlocks $10B+ of dormant NFT value for productive yield, creating new financial primitives.
$10B+
Dormant Value
0%
Native Utility Lost
02
The Problem: Off-Chain Metadata is a Centralized Time Bomb
Over 90% of NFT metadata lives on centralized servers (AWS, IPFS pins) or mutable smart contracts. If the link dies, the asset becomes a worthless hash.\n- Solution: Permanence layers like Arweave and verifiable compute oracles like Chainlink Functions.\n- Impact: Guarantees immutable, on-chain provenance for media and traits, turning NFTs into durable cultural artifacts, not just pointers.
>90%
At Risk
100%
On-Chain Provenance
03
The Problem: NFTs are Silos, Incompatible with Broader DeFi
ERC-721 tokens cannot natively interact with ERC-20 AMMs or lending markets. This forces fragmented liquidity and poor price discovery.\n- Solution: Cross-standard abstraction layers and intent-based protocols. Think UniswapX for NFT/ERC-20 swaps or ERC-404 experimental hybrids.\n- Impact: Enables single-transaction, cross-asset swaps and portfolio margining, merging NFT and DeFi liquidity into one unified market.
1-Click
Swaps
Unified
Liquidity
04
The Problem: Royalty Enforcement is a Broken Social Contract
Optional creator fees on major marketplaces have collapsed, with royalty payouts dropping over 95% on some chains. This kills sustainable creator economies.\n- Solution: Protocol-level enforcement via ERC-721C (transfer hooks) or dedicated L2s like Zora that hardcode royalties into the chain's logic.\n- Impact: Restores guaranteed, on-chain revenue streams for creators, aligning long-term incentives between artists and collectors.
-95%
Payout Collapse
100%
Enforceable
05
The Problem: Proof-of-Ownership is Not Proof-of-Utility
Holding an NFT grants no inherent rights to use the underlying IP, access gated experiences, or prove unique membership. The utility is off-chain and revocable.\n- Solution: Verifiable credential bridges like Iden3 and zkPass that link NFT ownership to off-chain auth, or fully on-chain games/ worlds.\n- Impact: Transforms NFTs from collectibles into verifiable access keys for real-world assets, services, and exclusive communities.
Zero-Knowledge
Proof
Real-World
Utility
06
The Problem: Valuation is Purely Speculative and Opaque
NFT pricing relies on thin order book markets and flawed floor prices, with no fundamental valuation models. This deters institutional capital and sensible underwriting.\n- Solution: On-chain analytics and valuation oracles like Abacus (for NFTfi) and Upshot, which use harberger tax models and ML to assess real-time value.\n- Impact: Enables data-driven lending, insurance, and derivatives, bringing institutional-grade risk models to the NFT market.
Data-Driven
Valuation
Institutional
Risk Models
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall