Introduction
ERC7527 was initiated by the original WrapX team and was officially merged by Ethereum in 2023
1. Introduction
ERC7527 is an Ethereum-based smart contract standard designed to address the liquidity issues of NFTs in decentralized systems through the Function Oracle Automated Market Maker (FOAMM) mechanism. This protocol defines interfaces for wrapping ERC-20 tokens or ETH into ERC-721 tokens, as well as unwrapping ERC-721 tokens into ERC-20 tokens or ETH. With the embedded Function Oracle, ERC7527 dynamically calculates the minting and burning prices of NFTs, enabling automated on-chain pricing and enhanced liquidity.
2. Core functions and mechanisms
2.1 Wrap and Unwrap mechanism
Wrap: Users can convert ERC-20 tokens or ETH into ERC-721 tokens through Wrap. The Wrap price is dynamically calculated by the function oracle according to the embedded FOAMM equation.
Unwrap: Users can convert ERC-721 tokens into ERC-20 tokens or ETH through Unwrap. The unwrapping price is based on the Price Stack mechanism to ensure transparency and fairness.
2.2 Function Oracle AMM (FOAMM)
FOAMM is an automated market maker mechanism that realizes on-chain pricing and liquidity management of tokens through smart contracts.
It combines the characteristics of Bonding Curve and Auction mechanism, and supports dynamic price discovery and complex game strategies.
In ERC7527, the Bonding Curve is part of its core pricing mechanism and is mainly used to dynamically calculate the prices during the Wrap and Unwrap of PTs. The introduction of the Bonding Curve is to solve the problems of insufficient liquidity and opaque pricing in the traditional NFT market. At the same time, combined with the auction mechanism, it further enhances the dynamics and complexity of price discovery.
2.3 Dynamic price discovery
The current price of Wrap takes into account the transaction time difference, the previous transaction price, and the current transaction price to ensure dynamic adjustment of prices.
The prices of Wrap and Unwrap are based on the price stack mechanism to ensure that users can exit at a fair price.
3. Advantages of ERC7527
3.1 Decentralized liquidity management
The design of ERC7527 can achieve decentralized liquidity management, fundamentally solving the problem of insufficient liquidity in the traditional NFT market and eliminating the dependence on external liquidity providers.
Full liquidity support: Assets have full liquidity in the secondary market. Users can conduct transactions, Wrap and Unwrap through Agency (asset pool). This mechanism ensures that assets can be efficiently bought, sold or converted at any time, avoiding the trading difficulties caused by insufficient liquidity.
Self-provided liquidity: ERC7527 does not need to rely on external liquidity providers. Users can directly participate in liquidity provision through smart contracts. This decentralized liquidity provision model eliminates the dependence on initial liquidity and enables any user to become a liquidity provider, further enhancing the flexibility and participation of the market.
3.3 Share of Interests
Users participating in Wrap/Unwrap form a community driven by economic interests and promote the development of related agencies.
This community-driven model enhances the sustainability of the ecosystem.
3.4 Dynamic game theory
Introduce auction mechanism in Bonding Curve to make the price discovery process more dynamic and complex.
Avoid the game problems caused by excessive transparency of traditional mechanisms.
Application scenarios
The following application scenarios are for reference only. The application scenarios of ERC7527 are unlimited.
Certificate: The ERC7527 confirms ownership or credentials (e.g., professional certification, membership, license).
Authentication: Because it is uniquely tied to a wallet address and cannot be forged, the ERC7527 doubles as a secure identity key.
Governance: Holders of the ERC7527 can be granted voting rights or authority in decision-making.
Check/Verification: On-chain records make it easy to verify history and legitimacy, ensuring that no one can alter or counterfeit the token’s details.
To conclude
ERC7527 provides an automated on-chain pricing and liquidity solution for ERC721 tokens through the Function Oracle AMM (FOAMM) mechanism. It not only addresses the issue of insufficient liquidity of ERC721 but also promotes the innovation and development of decentralized economies through dynamic price discovery and community-driven models. ERC7527 has a wide range of application scenarios, covering areas such as intangible asset tokenization, community projects, art trading, and AI agents and game assets.
In WrapX, the application of ERC7527 will provide AI Agents with the ability to autonomously manage their economic identities, enabling them to seamlessly participate in decentralized markets, capture and distribute economic value, and thus promoting AI agents to become the core driving force of a new generation of productivity.
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