PayPal applies for NFT marketplace patent for on- or off-chain asset trading

PayPal’s proposed NFT purchase and transfer system would handle fractionalization, DAOs and royalties through a third-party provider.

PayPal made major progress toward creating its own blockchain ecosystem by filing a patent application for a nonfungible token (NFT) purchase and transfer system. The application, filed in March and published Sept. 21, describes a means of carrying out transactions with NFTs, both on- and off-chain. 

The patent application, which is still pending, describes a system where users can buy and sell NFTs through a third-party service provider. That provider is not specified, though Ethereum is mentioned in the text.

Related: PayPal enables US users to sell cryptocurrency via MetaMask wallet

PayPal envisioned using the full potential of NFTs for tokenization, going far beyond the exchange of electronic collectibles:

“The NFT in this example may represent any unique piece of digital data that can be tracked using a decentralized blockchain ledger. […] Examples of such assets include […] digital images and videos, music, collectibles, and other digital art along with deeds to personal property, event tickets, legal documents and other real-world items.”

The system could be customized in a variety of ways. For example, it could accommodate fractionalized purchases through the distribution of governance tokens, which then could be traded themselves. In addition, a decentralized autonomous organization “associated with the service provider may be used to promote NFT liquidity through a dedicated platform.” NFTs could also earn income from royalties.

Schematic of an off-chain NFT trade, as proposed by PayPal. Source: USPTO

Processing by the service provider could include compliance and risk management. Users could have their own digital wallets but would not be required to. A third-party broker could provide a variety of storage and checkout services as an alternative. Off-chain transactions could be handled within an “omnibus wallet” associated with the service provider and containing both the buyer and seller’s wallets:

“Therefore, no transfer is registered on the blockchain and there is no need to broadcast the transaction to the blockchain network or pay the gas fees associated with such an on-chain transaction.”

Any currency could be used in the system, according to the application. In August, PayPal introduced its own stablecoin, PayPal USD (PYUSD), built on Ethereum.

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