Mint a Marketplace: NFTs on Kadena Marmalade (Part 2)

Mint a Marketplace: NFTs on Kadena Marmalade (Part 2)
Stuart Popejoy

Stuart Popejoy

December 3, 2021

Part 2: Technical Details of the new NFT Standard and Smart Contracts

In the previous article, we showed how Kadena Marmalade is revolutionizing how NFTs are transacted on-chain with multi-step pacts controlling sale, and token policies offering “pluggable” marketplace implementations for creators to choose from, or write their own! In this article we will go deep into the actual standards and Pact implementations so builders can start minting marketplaces right away on testnet!

Version 2 of the poly-fungible standard

Kadena’s initial NFT standard is inspired by ERC-1155, the “multi-token standard” on Ethereum. Like the ERC version, it mainly specifies transfer operations and limited metadata (the uri string value). Version 2 turbocharges this with the full Kadena vision of truly decentralized on-chain NFTs:

  • Haber Content Manifests. This replaces uri with cryptographically verifiable on-chain data, employing elements of Stuart Haber’s Content Integrity designs. This can be anything from a simple Data URI or DID (Decentralized Identifier) to any structured data, including image or document data on-chain!
  • “t:” Token Identifiers. These incorporate the Content Manifest hash to make a token ID that cryptographically identifies the actual NFT. No more random addresses and duplicate NFTs!
  • The “sale” pact. As introduced in the last article, this is the two-step-with-rollback trustless escrow sale pact that enables policy-driven markets. No more exchange lock-in!
  • Token policy specification. The “pluggable” logic that makes it possible for creators to specify every last detail of issuance, transfer and sale. Policies are how you “mint a marketplace”.

Understanding the “sale” trustless-escrow pact

Pacts in Kadena define a multi-step operation. They are used to handle cross-chain transfers and, behind the scenes, even handle the automatic gas purchase->redeem process on the Kadena blockchain!

In the sale pact, two steps are specified: offer and buy. The offer operation also has a “rollback step” that allows the seller to withdraw the sale. The sale pact uses a special feature of pacts, “pact guards”, to govern the trustless escrow of the NFT sale. Once an asset is transferred to an account governed by a pact guard, only that particular execution of the pact, as identified by its “pact ID”, has the right to manage that asset in subsequent steps.

Note that a sale can only occur after token creation and minting. A sale is how an existing NFT token that is owned by a “seller” finds a “buyer” who, upon success, will receive the token.

Step 1: Offer

Example of an “offer” step. Bob has offered to sell NFT1, which transfers the NFT to the escrow account associated with the sale ID. The NFT uses a token policy that allows quoting a coin price, so Bob quotes 50 KDA.

The first step of the sale pact offers the NFT for sale. This step handles the transfer of the NFT into the escrow account, and the fresh Pact ID assigned to the particular sale execution is considered the “sale ID” in the SALE event that gets emitted.

It’s important that the NFT be escrowed for sale, as it commits the seller to “play by the rules.” This allows buyers to pay (or bid) with confidence that the seller can’t rug-pull the NFT between offer and purchase or other shady business. By initiating the sale, the seller actually loses custody of the token unless the buyer does not materialize, at which point the seller can roll back the sale with the withdraw process described below.

The token policy is responsible for any specific behavior needed, as specified in the init-sale operation. The sale pact itself does nothing other than escrowing the pact and capturing a timeout value. Policies would here quote a price in some coin, or enforce a floor price: whatever is needed for the particular marketplace.

Step 2: Buy

Example of an “buy” step. Alice sends a continuation of the <sale:1> pact in order to transfer the NFT out of escrow to Alice’s NFT account. The NFT token policy first debits the sale price of 50.0 from Alice’s KDA account to credit Bob.

If a buyer wants to acquire the token offered in the first step, they send a continuation message of the Pact ID (or “sale ID”) initiated in the first step into the blockchain. Buyer recipient data for the token is specified in the message payload in the buyer and buyer-guard fields.

At this point, the token policy is responsible for enacting whatever offsetting transaction is needed to allow the release of the escrowed NFT to the buyer, in the enforce-sale operation. While the sale pact handles transferring the NFT out of escrow (and enforcing the timeout), everything else is “pluggable”, be that an offsetting coin transfer, royalty redemption, or whatever you can imagine!

Step 1 Rollback: Withdraw

The timeout captured in the offer step allows a sender to withdraw from the sale if nobody shows up to buy the token. The timeout is measured in blocks, such that if a seller sets the timeout to 30 blocks, they cannot pull out of the sale until 30 blocks have been mined on-chain.

Once the timeout has passed, the seller (or anybody, as the only authority governing the rollback is the Pact code itself) sends a special “rollback” continuation message for the sale ID. The withdraw operation simply transfers the token out of the escrow account back to the seller.

Note that all of the logic surrounding the step-wise operation of the sale pact is automatically handled by the Pact language itself (and the blockchain hosting it). This ensures that step 2 can only happen after step 1, and only if step 1 has not been rolled back, and only if step 2 has not already happened; likewise a rollback can’t occur if step 1 hasn’t happened, or if step 2 has already happened. As you can see, left to programmers this would inevitably result in numerous bugs. Instead with Pact it’s impossible to have a bug in the sequencing logic.

Token Policies

The sale pact is the critical piece of logic that powers mintable marketplaces, since it introduces a fully autonomous and enforceable way to offer tokens for sale within the standard. However, the token policy handles critical aspects of the sale, such as how does money change hands? How might a royalty be implemented? And also, doesn’t transfer still undermine everything?

Token policies don’t just govern sales, but transfer, minting, and burning as well. This is necessary to make a truly enforceable token policy:

  • Creation. The token policy is invoked when a token is created (this is distinct from minting, which actually establishes ownership of the NFT). This is where something like a royalty rate or other “permanent” data would be captured.
  • Minting. One thing about ERC-1155 (and poly-fungible-v1 too) is the lack of a way to lock down issuance. With the minting policy, a token can declare itself to be a true 1-of-1, or limited series, or a fully fungible coin.
  • Burning. Burning is already a head-scratcher for NFTs, but can obviously make sense for fungible coins. Burn policies allow prevention of burns in 1-of-1 and limited-series NFTs, as well as other rules a creator may desire.
  • Transfer. Transfer can finally be tamed with the transfer policy! For most NFTs it gets banned altogether, but it also serves other use cases like transfer restrictions, minimum or maximum order sizes, etc.
  • Sale. Sale policies have separate operations for the offer and buy steps of the sale pact. Offer is where you might quote a price, and buy is where an offsetting transaction can be executed.

Example: a “Fixed Quote Royalty” policy

To give a simple but powerful example of policies in action, let’s consider a creator offering a token that implements a policy that enforces scarcity, requires sales for transfer, and pays a royalty.

Creator “Carol” creates NFT7, a 1-of-1 with a 5% royalty, and mints it to herself.

In token creation, a fixed max supply is captured, which along with the standard notion of precision, allows creating a true 1-for-1 NFT (supply 1.0, precision 0), a limited series of say 5 (supply 5.0, precision 0), or any fixed issuance.

Minting enforces the max supply (precision is automatically enforced in the ledger), to prevent minting once the max supply is reached. For a 1-of-1 this would allow a single mint only. Burning is prohibited altogether.

The current owner of NFT7, “Bob”, initiates a sale, quoting a price of 100 KDA. NFT7 is transferred to the trustless escrow account for the sale ID “<s17>”

The sale initiation policy requires the seller to quote a price in some coin. This puts the NFT into the trustless escrow. Transfer is prohibited altogether to prevent offline sales without royalty enforcement.

“Alice” pays the 100.0 KDA to receive NFT7 from the trustless escrow, with 95.0 going to Bob, and 5.0 going to Carol.

The sale completion policy computes the royalty from the quoted price, transfers the royalty to the creator, and the balance to the seller, before releasing the escrowed token to the buyer.

Note that all sales going forward have to respect this process. The buyer can only resell using the exact same quoting process and royalty, with no possibility of back-handed transfers behind the scenes.

Conclusion: An Open Standard for Token Sales

Finally, NFTs can have rich on-chain metadata, verifiable IDs, and a true sale process for enforcing a policy-driven marketplace. Check out the KIP-0013 proposal where we’re hammering out the new standard, and come check out our smart contracts on testnet and on Github to see how you can “mint a marketplace” and drive innovation in NFTs on Kadena!