ERC721R Smart Contract: Built-In NFT Refunds, No Rug Pulls

With Rug pulls taking in $2.8 billion dollars in crypto last year, the proposed solution for a more stable NFT ecosystem is a new token standard called ERC721R. On April 11th, 2022 the ERC721R token standard was released. It builds off the ERC721 smart contract standard, which NFTs typically use. The major difference between these contracts is the fact that ERC721R can implement a refund.

Tokens that utilize the standard will come with a refund feature. This will allow users who mint an ERC721R NFT will be able to trade the NFT back for the original mint price within a specific frame.

Launched by CryptoFighter,  a P2E (play-to-earn) blockchain game, ERC721R implements trustless refunds to NFT smart contracts and allows minters to return their minted NFTs within a given refund period. The low-risk nature of refundable mints and accountability allows collectors to feel secure in auto-minting projects, according to ERC721R.org.

The NFT creator cannot withdraw funds from the smart contract during the refund period so you’re guaranteed that your cryptocurrency is there when requesting a refund.

ERC721R refund NFT
The ERC721R smart contract locks in funds so that the creator is unable to withdraw until the refund period is over. [Image via @nate_on_chain/nateonchain.eth]

ERC721R.org encourages more creators to adopt the ERC721R standard smart contract to prevent rug pulls, increase creator accountability, protect floor prices, and more. Collectors will still be responsible to pay gas fees to mint and obtaining a refund for their NFT.   gas to mint and refund.

Prevents Rug Pulls

If you have 30 days to request a refund after mint this stops quick rug pulls where the artists don’t deliver as promised. CryptoFighter Alliance stated that the ERC721R contract will signal to collectors that you will not rug them.“For collections, the benefit is primarily signaling to collectors that you are unlikely to rug them, helping you build a more committed community and sell out faster. Also a refund helps support a floor price during the initial refund period.”

Accountability

The ERC721R  also allows holders to see if the creator of the NFT is making good on their promises to the communities and how they handle the community during the refund period.

NFT rugpull
A whopping 2.8 billion dollars was lost to NFT investors via rug pulls in 2021. [Image via ChainAnalysis]

Floor Price Is Protected

A collector would not have to sell below mint during the refund period because they could request a refund; thus the floor price will be protected. 

Lowered Risk 

If a collector doesn’t like the direction that the project is going in, they can return their NFTs and receive a refund.

Projects who are currently implementing the ERC721 contract into their NFT projects are:
Steinbock, who implements the ERC721R smart contract into their NFT projects Exodia and Crypto Fighters, stated that refunds in Web2 work great for businesses that use it because the vast majority of people don’t request a refund. Steinbock also noted that this is a way for creators to stand out amongst bad actors in the space.

“The NFT space needs a way for creators to stand above the noise and separate themselves from the rug pulls.”

However, many have found various loopholes in the contract.

In 2020, rug pulls accounted for 1% of all scam revenue and jolted to 37% in 2021.

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