Newsletter #221: Liquefaction
A positive re-imagining of NFT ownership
This week’s featured collector is digitalgalaxy
DigitalGalaxy has a stunning collection of one-of-a-kind digital planets. Check it out at lazy.com/digitalgalaxy
Would you join a collector DAO built like Flamingo?
Last week we asked readers whether they would join a collector DAO modeled on Flamingo, the well-known on-chain fund that pools capital to acquire high-end NFTs. The response was anything but lukewarm: 86 percent of participants clicked “Yes,” signaling broad enthusiasm for a curated, professionally managed buying club where members co-own blue-chip assets. Only 14 percent opted out, and—perhaps most striking—no one chose “Not sure,” suggesting that opinions are already well-formed rather than tentative. If you’re building Liquefaction-style vaults (see below) or experimenting with shared-ownership mechanics, this is a strong signal that the appetite for collective collecting is real and growing.
Liquefaction: What Every NFT Collector Needs to Know
Imagine if your favorite NFT could stay safe in your own wallet while its utility—VIP access, voting power, loyalty discounts, or even the prestige of a soul-bound badge—temporarily earned yield for you in someone else’s hands, all without a single on-chain transfer. That’s the promise of Liquefaction, a new technique that uses trusted-execution environments (TEEs) to let multiple parties share a private key under strict, programmable policies. By decoupling “who owns the asset” from “who may use it,” Liquefaction quietly turns previously illiquid rights into tradable, rentable primitives—opening fresh revenue streams for collectors and fresh design space for Web3 builders.
A concrete glimpse of Liquefaction in action is the “Take My Ape” demo, which lets anyone bid for short-term control of a real Bored Ape NFT. After connecting their primary wallet, users spin up an encumbered wallet on the Oasis Sapphire TEE chain, fund it with a small amount of ETH and ROSE, and submit a sealed-bid, second-price auction offer. The highest bidder transfers the Ape into their encumbered wallet and enjoys at least fifteen minutes of full, verifiable ownership: they can display or license the image, sign messages proving possession, enter BAYC-member areas, and even interact with BAYC Studio—all while the original owner’s key remains shielded. Auction payments are burned to the zero address to prevent profiteering, and every policy attached to the encumbered wallet self-expires after four weeks, keeping control periods finite and transparent. The result is a live demonstration of how Liquefaction can monetize NFT utility without relinquishing underlying custody.
Understanding Liquefaction
Liquefaction is a research prototype that quietly challenges one of Web3’s deepest assumptions: that every blockchain address is controlled by a single person or entity. By putting a private key inside a trusted-execution environment (TEE), Liquefaction lets multiple parties—or even automated policies—share control of the same wallet without leaving tell-tale traces on-chain. For NFT collectors this opens unexpected possibilities. A soul-bound token that was meant to act as permanent proof of identity or achievement can now be “loaned” to someone else for a limited time, while remaining in the original wallet. Blue-chip NFTs that grant real-world perks—such as event tickets, metaverse boosts, or staking rewards—can be rented out safely, creating brand-new revenue streams without surrendering custody of the asset.
Because signing happens inside the TEE, transactions can be initiated privately. This means over-the-counter trades, private vault arrangements, or loyalty-point rentals can occur with minimal on-chain footprint. Collectors’ DAOs in particular gain powerful new tooling: a vault could, for example, let one member bid on low-cap artists while another member handles only high-value acquisitions, all through granular delegation instead of new wallets. Liquefaction also offers a practical defense against “dusting” attacks: unsolicited or tainted tokens can be provably segregated so exchanges and compliance desks can see that you never assumed control of them.
The same flexibility carries risks. Liquefaction can enable sophisticated vote-buying schemes in DAOs, make wash-trading harder to detect, and let bad actors rent reputation. Applications that rely on the “one wallet, one user” model may need stronger safeguards—specifically, proofs of Complete Knowledge (CK) that demonstrate a key is under the sole, unencumbered control of its owner. For projects and collectors who adopt such checks, Liquefaction becomes an opt-in feature rather than a stealth threat.
Overall, Liquefaction invites a positive re-imagining of asset ownership. It can unlock liquidity for previously illiquid perks, lower the barrier to premium experiences, and spur new financial primitives—provided the community updates its security models accordingly. To explore the technical details, threat analysis, and open-source code, you can read the full academic paper, “Liquefaction: Privately Liquefying Blockchain Assets” or test the demo at takemyape.com.
What’s the most exciting use case for Liquefaction?
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