---
description: >-
  ERC-7527, also known as the Token Bound Function Oracle Automated Market Maker
  (FOAMM), is a protocol designed to enhance the NFT ecosystem through a
  trustless framework. It aims to address the challe
---

# ERC-7527-SMT

#### Key Components of ERC-7527

* **Agency and App Contracts**: ERC-7527 uses a structure where there are distinct Agency and App contracts. The Agency is responsible for managing assets and can mint NFTs upon receiving fungible tokens, whereas the App contract handles the NFT operations like minting and burning.
* **Factory Interface**: It allows the deployment of new Agency and App contracts using settings predefined by the users. This modular approach facilitates the creation of customized NFT minting and managing solutions tailored to specific needs.
* **Wrap and Unwrap Functions**: These functions are central to the interaction with NFTs within this protocol. Wrapping involves depositing fungible tokens and receiving NFTs, while unwrapping allows users to redeem their NFTs for the original or a different fungible token, based on the current valuation provided by the oracle.
* **Oracle Integration**: The protocol integrates price oracles to determine the current value of the NFTs when wrapping or unwrapping, ensuring that the transactions reflect real-time market conditions.
* **Customizable Parameters**: Users have the flexibility to set various parameters such as fee percentages, initial prices, and the type of currency used. This customization ensures that the deployment of the smart contracts can be finely tuned to meet the specific economic models envisioned by the users.

#### Implementation and Use Cases

ERC-7527's implementation leverages advanced Ethereum functionalities like the use of smart contracts and immutable parameters, ensuring secure and verifiable transactions. This protocol not only facilitates more fluid NFT market operations but also supports complex use cases such as dynamic pricing models for NFTs which can be crucial for artists and creators in the digital economy.

#### Challenges and Innovations

The main challenge addressed by ERC-7527 is the lack of liquidity and flexible pricing mechanisms in the NFT market. By using function oracles and automated market making strategies, the protocol provides solutions that can adapt to varying market conditions, thus enhancing the overall efficiency of NFT transactions.





<figure><img src="https://3307190497-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FRE7cia6IPLwAOGeIaELh%2Fuploads%2FNTa1mEahKOLHHbfDCXGO%2Fimage.png?alt=media&#x26;token=1188559d-d99b-4dac-a331-d591ab9d2495" alt=""><figcaption><p><a href="https://eips.ethereum.org/EIPS/eip-7527">https://eips.ethereum.org/EIPS/eip-7527</a></p></figcaption></figure>

Let's explain the workings of the ERC-7527 protocol through a practical example to better understand its application in blockchain technology.

#### Scenario Setup

Imagine a digital art marketplace where artists wish to sell their artworks by converting them into Non-Fungible Tokens (NFTs). To streamline the transaction process and enhance liquidity, the marketplace decides to implement the ERC-7527 protocol, enabling automated NFT pricing and trading.

#### Application of ERC-7527

1. **Creating Agency and App Contracts**:
   * Market developers first deploy two smart contracts: an Agency contract and an App contract.
   * The Agency contract handles the assets (i.e., artists' artworks) and allows for the minting and burning of these assets as NFTs.
   * The App contract manages the specifics of NFTs, including the logic for their minting and burning.
2. **Configuration and Deployment**:
   * Developers configure specific parameters for these contracts through the ERC-7527 Factory interface, such as which currency (e.g., ETH) to use for purchasing NFTs, transaction fee rates, etc.
   * Once configured, the Agency and App contracts are deployed on the blockchain via the Factory contract.
3. **Transaction Process - Wrapping and Unwrapping**:
   * **Wrapping**: When a buyer decides to purchase an NFT of an artwork, they send an equivalent amount of ETH (or other cryptocurrencies) to the Agency contract. According to the ERC-7527 protocol, upon receiving the funds, the Agency contract calls the App contract to mint a new NFT, representing ownership of the artwork.
   * **Unwrapping**: If an NFT holder decides to sell their NFT, they can initiate an unwrapping operation. During this process, the NFT is burned, and the originally paid ETH (minus a transaction fee) is returned to the user.
4. **Pricing Mechanism**:
   * Integrated price oracles in the Agency contract enable real-time market value retrieval during both the wrapping and unwrapping processes. This ensures that the transaction prices are always aligned with current market conditions.

#### Advantages

The advantage of using the ERC-7527 protocol lies in providing a standardized approach to handle the minting and burning of NFTs, while also automating price adjustments through oracle integration, thereby enhancing market liquidity and efficiency.

Through this example, we can see how [ERC-7527](https://eips.ethereum.org/EIPS/eip-7527) supports complex transactions and asset management, making applications like a digital art marketplace more efficient and user-friendly.
