Talk about how to provide liquidity for NFT from 8 new NFT AMMs

The emergence of DeFi started the revolution of digital finance democratization. Among them, the free creation of liquidity pools through AMM has greatly increased the liquidity of ERC-20 Tokens and unlocked the discovery of value for some long tail Tokens. Therefore, today we can see a variety of transactions, loans, leverage and other activities on the chain.

On the other hand, with the popularity of NFT in the past two years, financial infrastructure based on NFT has also emerged. In particular, the emergence of Sudoswap has pushed the development of NFT Fi to a new milestone. Unlike the offline order book, anyone can add or delete liquidity on the chain through SudoAMM, so that the liquidity pool holding ERC-20/NFT pairs can achieve truly decentralized NFT transactions.

However, Sudoswap's air drop rules have caused considerable controversy in the community. Many users expressed their disappointment at the air drop. They believed that Sudoswap did not show respect for the community and attached importance to liquidity providers. Therefore, an NFT AMM that could replace Sudoswap was urgently needed, even more superior to the traditional NFT trading markets (such as OpenSea and X2Y2) in providing liquidity.

Next, this article will introduce some of theNew NFT AMM, and specificLiquidity provision methods suitable for different types of NFT, for readers' reference.

TL; DR

1) A set of NFTs is mainly regarded as the floor price and the NFTs near it (thus approximately considered as substitutable) and rare NFTs;

2) The ways to provide liquidity for floor NFT mainly include: NFT AMM and some NFT liquidity agreements;

3) The main ways to provide liquidity for rare NFT are: auction and NFT fragmentation protocol;

4) Both floor and rare NFT in a collection can increase liquidity through borrowing and leasing.

NFT AMM

NFT AMM is a decentralized alternative to OpenSea, X2Y2, Magic Eden and other offline order book centralized NFT markets. It mainly uses flow pools to achieve frictionless and low-cost transactions.

Due to the low accessibility of NFT, even blue chip NFT does not have much liquidity in the current centralized market. Through NFT AMM, anyone can add liquidity to the chain and earn certain transaction costs.

SudoAMM is an NFT AMM protocol created by Sudoswap. It consists of many separate NFT liquidity pools. Each liquidity pool is managed by an LP, which canPricing function curveInitial costDelta Thresholdas well asTransaction cost ratioControl.

Unlike the constant product algorithm curve of traditional AMM, SudoAMM adopts a joint pricing curve (any curve is allowed) to build a liquidity pool to promote NFT transactions, mainly including linear curve and exponential curve. Recently, Sudoswap added another item called "Concentrated XYK CurveThe pricing curve ofThe user is allowed to control the depth and sliding point of the liquidity pool by setting the concentration parameter, thus controlling the price range of the liquidity pool

Granular

Granular aims to create a low gas NFT AMM that can better evaluate the value of NFT. It has won the third prize of NFT financial Hacksong sponsored by 1kx network and Macro DAO.

Granular believes that the NFT in the liquidity pool of the existing NFT AMM market (such as Sudoswap) is generally considered replaceable, and their prices are basically the same, usually near the floor price. But this brings some problems. Intuitively,The value of NFTs in a set is not the same, which will cause the value of rare NFTs to be seriously underestimated

Therefore, in Granular, it is set that each NFT set has a "Main pool」。 Whether you want to trade or do LP, you need to go to the same main pool,The listed NFTs will have different prices in the primary pool

But in fact, each "master pool" is composed of multiple "Subpool"And is divided according to the" desirability score "of the NFT set,The sub pools with lower scores mainly include the underlying NFT assets, while the sub pools with higher scores include high-quality assets

In addition, each sub pool has its own joint curve. The number of sub pools and the number of NFTs in each sub pool vary depending on the NFT set. The higher the liquidity of the NFT set, the more sub pools.

SeaCows

SeaCows is a AI driven hybrid NFT AMM protocol, support any Web3 project to build its own decentralized NFT AMM market to provide instant NFT liquidity and increase transactions. Compared with Sudoswap, SeaCows adds an AI driven price oracle to comprehensively evaluate the value of NFT.

SeaCows believes that NFT is different from ERC-20 Token, and common joint curve pricing strategies do not take theirUniquenessandIrreplaceabilityTherefore, we need an AI based price evaluation mechanism,Combine the on chain and off chain data of a specific liquidity poolAnd provide NFT with a fair quotation in real time.

In terms of specific working mechanism, SeaCows's AI price prediction opportunity collects and summarizes a set of NFTsmetadataAnd relatedTransaction HistoryAnd then clean and process the captured data for training and evaluating the NFT value algorithm. Next, the NFT set israrityandpracticabilityDivide the whole series into 5 groups.

When creating a liquidity pool on the chain, different pricing parameters (i.e. initial price, pricing function, incremental threshold and handling fee) are set for each group and can be adjusted by LP. Once set, pools with different levels are created.

In addition, the core development team of SeaCows is composed of NFT degens and game players, so SeaCows is cooperating with the GameFi project to test its feasibility and practicability, help the latter to test and integrate the NFT AMM game market of point to pool, so as to increase in game trading and strengthen the game economy. At the same time, players can earn transaction costs by becoming liquidity providers.

At present, the alpha beta version of SeaCows has been launched, and the beta version will be launched at the end of September.

PikoSwap

Pikoswap is an NFT AMM on the chain. Users can trade NFT freely and flexibly, or establish their own NFT liquidity pool to earn transaction fees.

Pikoswap also believes that NFT in liquidity pool is a set of similar quality and price, which is applicable to a certain price range, but does not make a special distinction. To realize the pricing of NFT in each pool, Pikoswap also adopts the joint curve pricing strategy: Linear Curve and Exponential Curve.

In addition, Pikoswap has set 0 Royalty, receive 0.5% Service charge of. At present, the test version of Pikoswap will be launched soon, and the platform Token (PIKO) will be launched later.

According to the disclosed information, official Twitter was only launched this month, and the mechanism design of Pikoswap AMM is highly similar to that of Sudoswap, which can be regarded as a copy project of the latter temporarily.

Herculeswap

Herculeswap is also an NFT market with AMM, allowing NFT creators to publish their NFT series on Herculeswap and add liquidity pools to it. At the same time, users can also establish their own NFT liquidity pool to earn transaction costs.

However, Herculeswap believes that the current problem of NFT AMM market is the volatility of LP and the lack of initial funds to the liquidity pool. So in order to protect investors and support real creators,NFT creators need to set a certain percentage of mint revenue to be locked in the liquidity pool to provide initial liquidity; If the project mint fails, the mint fee will be returned to the investor

At present, the official website of Herculeswap has not been launched, and the official Twitter was launched in August this year.

Goat Swap

Goat Swap is an NFT AMM on Solana, which was founded by the co-founder of Jupiter Aggregator, the online transaction aggregator of Solana.

Through GOAT Swap, users can create their own liquidity pools to purchase, sell and trade NFT. The most common liquidity pool in GOAT Swap is NFT<>SOL pool. Any user who holds the corresponding NFT in the liquidity pool can replace it with SOL.

At present, the beta version of the main network of Goat Swap has been launched, and the platform collects 1% of transaction costs。 From the perspective of use experience, GOAT Swap is also a copy disk project of Sudoswap. When creating a liquidity pool, users can set their own NFT price and transaction fee ratio. However, GOAT Swap did not disclose the specific NFT pricing strategy curve.

Elixir

Elixir is another NFT AMM on Solana, which mainly provides NFT near the floor price for purchasing, selling and trading collectibles. Elixir aims to assign market ownership to legitimate value creators, and the platform is jointly managed and owned by creators, collections and communities.

At the same time, Elixir targets Nectar HolderIt provides functions such as lending, pledge and derivatives, and NECTAR will distribute 777 for free. However, the official discord is currently closed, and the specific acquisition rules are unknown.

In addition, when the creator releases NFT series on Elixir, it is also necessary to set a certain percentage of mint revenue to be locked in the liquidity pool to provide initial liquidity, andWhen creating a liquidity pool, users also need to follow the relevant fee structure determined by Elixir

hadeswap

Hadeshap is also an NFT AMM in Solana. Users can create their own liquidity pools to purchase, sell and trade NFT. Currently, it has been supported by the recent popular NFT project ABC (abracadabra) in Solana.

ArraySwap

ArraySwap is the NFT AMM of BSC, which has not been officially launched yet.

NFT Liquidity Agreement

In addition to NFT AMM, the floor price in the current NFT set and the NFT nearby can also be stored in the vault or liquidity pool of some liquidity agreements, and an interchangeable ERC-20 token can be cast, and then the token can be added to DEX to indirectly obtain liquidity.

At the same time, not limited to NFT near the floor, it can also beSame price gradeThe NFT of creates a liquidity pool. As long as there is sufficient supply, NFT in a price grade can also be considered as replaceable.

Therefore,With the emergence of liquidity agreements, it is no longer necessary to find buyers for specific NFTs, but to open the pool of buyers to users who want to buy any "same group of NFTs", providing faster liquidity time than ordinary market salesNFT-LP agreements such as NFTX and NFT20 are markets based on liquidity pools similar to "NFT asset groups".

NFTX

NFTX is a market and liquidity agreement aimed at realizing NFT transactions. NFT collectors can deposit the entire NFT into a treasury of NFTX and forge interchangeable ERC-20 vTokens.

The vToken represents the value stored in the NFT. The NFT in each vault comes from the NFT of the same set. At any time, the NFT collector can use these vTokens to randomly purchase an NFT asset from the vault, or pay an additional fee to redeem a specific NFT from the same vault.

One of the characteristics supporting the NFTX model is that vTokens can establish ERC-20 corresponding flow pools on Uniswap and Sushiswap, such as ETH - PUNK LP of CryptoPunks series. Therefore, users can obtain the instant liquidity of NFT with the help of highly liquid vTokens.

Retail investors who want to invest in CryptoPunks can also invest by purchasing PUNK. In addition, collectors can pledge their vTokens in the liquidity pool. Whenever someone buys or sells NFT, the pledgor can earn expense income.

NFT20(MUSE DAO)

NFT20 is a decentralized NFT exchange, allowing individuals to trade, sell and exchange NFT. Similar to NFTX, NFT20 allows NFT holders to add their NFTs (such as BAYC) to a liquidity pool. In return, they will receive 100 ERC-20 Tokens that are interchangeable in a specific liquidity pool.

These ERC-20 Tokens can be traded on Uniswap and other DEX or deposited as liquidity, and other NFTs in the NFT set can be purchased in the corresponding liquidity pool. In addition, some NFT20 liquidity pools also provide liquidity mining incentives, and users can obtain NFT20's local Token (MUSE).

It is worth mentioning that if the NFT holder thinks that his NFT price is high, he can choose to create a Dutch auction on the NFT20 asset page, so that he can get a higher ERC-20 Token price when selling NFT.

To sum up, after trade-offs, NFTX and NFT20 have played a certain exemplary role in the design of liquidity mechanisms. However, the uniqueness and diversity of NFT still bring challenges to the search for liquidity.

For some rare NFTs, they often occupy a higher value. Although the financial agreement for floor NFT can unlock more liquidity, there is still much untapped value in finding liquidity solutions for rare NFTs

auction

Auction is a way to provide relatively good liquidity for rare NFTs, which can often bring rich profits to creators (such as the auction of rare NFTs such as BAYC and CryptoPunk on Christie's and Sotheby's). The high-profile bidding war has played a significant role in bringing NFT to the market.

But as a means of price discovery,The capital utilization efficiency of auction is very low or even lower than that of direct transaction in the centralized market, because it requires bidders to lock up capital, and the capital lock between multiple bidders often exceeds the final sale price of assets

In addition, auction usually requires pre negotiation with potential buyers or extensive marketing work to attract attention to sales,It will take a long time

NFT fragmentation protocol

The fragmentation protocol of NFT is another way to help deepen the liquidity of rare NFT. The fragmentation protocol involves "splitting" NFT into multiple parts, and then converting it into a replaceable token to obtain liquidity in DEX.

This allows users to obtain partial ownership of some rare NFTs that are highly sought after, whileThere is no need to pay high costs, while increasing the traffic of rare NFT and building new communities

Unicly

Unicly is a fragmented protocol that requires no license and is used to combine, split and trade NFTs. Users can create a vault by locking a set of NFTs (which can be different series of NFTs) in Unicly's smart contract, casting ERC-20 uTokens, and then adding uTokens to Unicswap (a forked product of Uniswap V2) to complete pricing to obtain liquidity.

When the holders of uToken reach a certain proportion, they can vote to unlock the vault. This proportion is set by the vault creator at the beginning. After unlocking, the NFT in the vault can be obtained by the bidder, while the uToken holder can receive part of the ETH paid by the bidder.

In addition, Unicly released a governance token (UNIC). The holder can obtain xUNIC by locking the UNIC, and the xUNIC holder can obtain 0.05% of the revenue from the Unicly agreement. This part of the revenue comes from the 0.3% transaction fee charged by uTokens to users in Unicswap transaction, and the remaining 0.25% fee belongs to the liquidity provider of uTokens.

Fractional(Tessera)

Fractional is another decentralized NFT fragmentation protocol. Users can lock NFT in Fractional's vault and cast a certain number of ERC-20 Tokens. At the same time, the specific names, symbols and reserve prices of these Tokens are also set by the creator.

Then, the creator needs to distribute these Tokens, and the end user can purchase them directly on Uniswap. The holder of the token can vote to update the base price of the NFT auction, and after fully voting to negotiate the price, start bidding to buy NFT. After the auction, the holder can make a profit by exchanging his Token for ETH.

The difference between Fractional and such liquidity agreements as NFTX and NFT20 is that once NFT is stored in Fractional's vault, NFT will be auctioned without any revenue generation mechanism, while NFT stored on NFTX and NFT20 will be locked in the revenue generation pool.

However, in general, there are still some limitations in the way of providing liquidity through the NFT fragmentation protocol.It will make people more willing to trade part of rare NFT, which increases the difficulty of market making according to the customized characteristics of complete rare NFT, and introduces the complexity of ownership and governance

In addition,Fragmentation also reduces the composability of assets, making part of the rare NFT often useless outside the system

Lending and leasing

Lending and leasing are important economic behaviors in the financial field. For NFT,Whether it's a floor or a rare oneThese two methods can further unlock liquidity and increase capital utilization efficiency.

NFT loan

The NFT lending platform allows users to borrow liquid assets by mortgaging their NFT to improve the capital utilization efficiency of NFT. In NFT lending agreements, there are mainly two mechanisms to promote NFT as collateral lending: point-to-point lending and point-to-point pool lending.

1) Peer to Peer Lending

In point-to-point lending agreements (such as NFTFi, TrustNFT, etc.), the borrower and the lender reach an agreement on loan terms (term, loan to value ratio and APR) in a point-to-point manner. Among them, the matching process is manual, all parties need to reach an agreement on the terms, and the borrower needs to approve the loan offer, so the time to obtain liquidity may be slow.

However, the loan terms can be customized according to each user, without relying on the price oracle, but requires professional knowledge to evaluate.

2) Point to pool lending

Unlike peer-to-peer lending, peer-to-peer pool lending can provide instant liquidity. The NFT lending protocol (such as BendDAO, Drops, etc.) is responsible for the matching process, and it needs to rely on the price oracle to automate the loan terms.

Therefore, to make these agreements work,Prophet InfrastructureandStable floor priceIt becomes very important, so most agreements only accept blue chip assets as collateral.

NFT Leasing

The NFT lease agreement allows users to lease their NFT in exchange for stable fees or future income. For example, some gold playing guilds lend NFT assets in the game to new players in exchange for tokens they can obtain in the game in the future.This provides an additional source of liquidity for users who do not want to give up their assets but want to earn income by idling NFT

Therefore, NFT leasing is divided intoGeneral NFT Lease Agreement(such as reNFT, Rentable, etc.) andLease platform in vertical field, such as the game asset leasing platform in some GameFi, and the leasing platform of some meta universe virtual land.

But becauseAt present, NFT in the market is still lack of certain practicality, so the demand for renting mainstream NFT assets is generally low。 Recently, Rentable, the general NFT lease agreement, officially announced its closure, and the founder also said when summing up the lessons, "NFT is different from ERC-20, so we should establish a vertical NFT lease customization solution".

summary

As an irreplaceable token, NFT is naturally less liquid than ERC-20 Token. The lack of liquidity brings two problems:Insufficient price discoveryandLow capital utilizationThese further hinder NFT from releasing greater potential.

Therefore, this paper discusses some ways to provide liquidity for NFT, and highlights some NFT AMMs similar to Sudoswap. However, the development and experiment of NFT financialization have just begun, and the foundation of a reliable NFT valuation model has yet to be established. As NFT expands to a wider economy and gets more applications, it will further determine the value of the asset more reasonably through the application of NFT.