Taking advantage of the popularity of sudoswap, partybid, and BendDAO, I scanned through NFT + DeFi (or NFT finance) projects. I mainly referred to BurstingBagel's compilation of NFT finance projects:
NFT DeFi projects are mainly divided into three categories: lending, liquidity, and derivatives. Here, I have compiled nearly 30 projects and summarized the characteristics of each category's protocols without providing detailed introductions for each protocol.
In future articles, I will provide some comments on the characteristics and long-term value of several projects. If you are interested, you can subscribe.
Lending#
This category of protocols provides NFT collateralized lending.
Lending requires high-quality collateral with good liquidity and stable prices. All lending protocols have asset verification mechanisms, and only NFTs that pass the verification process are eligible as collateral.
Lending protocols can be divided into three categories: peer to peer, peer to pool, and peer to protocol.
Peer to Peer#
Lending is completed through individual transactions between NFT holders and lenders. NFT holders and lenders specify the loan amount, interest rate, term, and currency, and complete the lending process after reaching an agreement. These loans are usually short-term with higher interest rates.
In terms of user experience, the usage and management processes are more complicated.
There is no centralized LP liquidity pool, so the systemic risk is very low. Therefore, the protocols can approve a large number of assets, and even NFTs with medium to low market value can be used as collateral.
The main players are NFTfi and arcade.xyz, with the latter having an additional feature of allowing lenders to publish collection offers. MetaStreet, in addition to peer-to-peer lending, has a graded fund asset pool to receive assets.
Peer to Pool#
NFTs are collateralized, and funds are borrowed from the asset pool, with BendDAO as the representative. The protocol aggregates lenders' funds into a liquidity pool, and lenders can intuitively see the yield and have simple operations.
NFT holders borrow funds from the liquidity pool, and the collateral does not belong to a specific LP. Therefore, when the collateral is liquidated, the protocol handles it.
Since the risk of LPs is concentrated in the liquidity pool, there is a risk of significant insolvency when the NFT market experiences a sharp decline. The collateral review is more cautious, usually only allowing blue-chip series as collateral.
Some protocols have the BNPL (Buy Now Pay Later) feature, such as bendDAO, PINE, and cyan, which allows the funds obtained from collateralized loans to be used to purchase specified NFTs with free funds, essentially leveraging the purchase of NFTs.
Peer to Protocol#
NFTs are collateralized in the protocol, and loans are issued by the protocol, with JPEG'd as the representative, where NFTs are collateralized to obtain PUSD. It is the NFT version of Maker. Unlockd and Spice Finance are not yet launched, so no explanation is provided.
Liquidity#
These are trading protocols that aim to increase liquidity in the NFT market. (In the original tweet, there is another category of valuation products, such as Abacus. However, it is actually not much different from liquidity products, so I included it in liquidity products.)
There are two ways to increase liquidity: AMM and fractionalization.
sudoswap is a typical AMM protocol. After LPs choose the price function and set the fee rate, they can choose to provide only NFTs, only FTs, or both. LPs are incentivized to provide liquidity through fees, thereby increasing market liquidity.
Fractionalization protocols can be divided into two categories: seller fractionalization and buyer fractionalization.
Seller fractionalization protocols include NFTX, fractional, and Gumball. The common feature is that NFT holders fractionalize their NFTs into FTs for trading. After fractionalization, liquidity pools for the fractionalized tokens and ETH are needed to provide liquidity. For example, when listing a CryptoPunk on NFTX, you will receive 1PUNK FT. At this time, PUNK needs to rely on the PUNK/WETH pool on SushiSwap to provide trading depth. Fractional generates dedicated FTs for each vault, unlike NFTX, which generates collection-level FTs. Therefore, the liquidity of fractional's FTs is usually poor and may even be untradeable.
partybid achieves buyer fractionalization by crowdfunding NFT purchases, determining the share of the purchase based on the proportion of contributions before the NFT is bought. It can be said that partybid overcomes the initial lack of liquidity for fractional's FTs and activates fractionalization. However, adjusting the auction floor price of fractional requires a vote from FT holders, and the laziness of holders in governance can still result in NFTs being unable to be auctioned for a long time.
Another noteworthy product is Abacus, which allows NFT holders to receive liquidity support without having to custody their NFTs with the protocol. The specific method is as follows: NFT holders open a pool and specify the corresponding NFT (no need to deposit with the protocol, just specify it). LPs can deposit ETH into this pool, and NFT holders can exchange all the ETH in this pool for the previously specified NFT at any time. After the exchange, the protocol automatically sells this NFT. If the selling price is higher than the original ETH in the pool, LPs share the profit. If the price is lower than the original ETH in the pool, the LPs willing to bear higher risks will bear the loss. This makes the ETH bid in the pool closer to the market price of the NFT. Whether this method effectively increases the liquidity of NFTs still needs further discussion, and I will discuss it separately later.
Derivatives#
There are no significant highlights in the gameplay of derivatives, just futures, funds, and options.
nftperp provides futures products for several blue-chip projects' floor prices, with a maximum leverage of 5x. It has launched on Arbitrum to reduce transaction fees. Mimicry provides leveraged trading in a similar way to Synthetix.
Putty provides a Put Option market for NFT holders to hedge against the risk of NFT price decline. Option buyers set the premium, strike price, and term and place orders, while option sellers receive the premium when accepting orders and deposit collateral.
Hook Protocol provides a Call Option market. Option sellers collateralize NFTs to sell Call Options, and option buyers pay the premium to obtain the options. This product is somewhat inexplicable, as NFT holders need to be bearish to sell options. -_-!
For projects that have not issued tokens, you can start with an interaction, such as NFTX. Many projects have not yet launched, so if you are interested, you can participate in early access, whitelist, etc., to take advantage of any opportunities in case they become popular.
References:
NFTfi chart: https://dune.com/rchen8/NFTfi
arcade.xyz chart: https://dune.com/sdlep/arcade-nft-lending
MetaStreet chart: https://dune.com/goyem/metastreet-labs
sudoswap chart: https://dune.com/0xRob/sudoamm
NFTX chart: https://dune.com/nftx/NFTX-Dune-Dashboard-Protocol-View
fractional chart: https://dune.com/mizmatcat/Fractional.Art
partybid chart: https://dune.com/zyakun2016/zhong-chou-fen-xi
