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nftperp 144 days, 5 hours ago


Look At My JPEG — Ep.30 Recap — Fungify

Welcome to another summary of our recent conversations with NFT Finance teams, where we delve into their projects, market views, future plans, and much more. This time, we had the pleasure of speaking with Mob and Alice from Fungify, a non-custodial NFT index and algorithmic lending protocol.

Introducing Mob

Mob began his crypto journey in 2017. He initially invested in it and was particularly intrigued by Ethereum and its white paper. By 2017, he was actively involved in DeFi projects. Mob’s interest in NFTs started with CryptoKitties, but he didn’t really get into it until March 2021, after being influenced by the crypto punk thesis. His increasing involvement with NFTs led him to identify a liquidity problem in the space. This pursuit to find a solution brought Mob in contact with like-minded individuals from the community, leading to the creation of Fungify.

Fungify as a platform

Fungify is a platform in the NFT ecosystem designed to tackle liquidity challenges. It consolidates multiple NFTs into a vault, creating an indexed vault that allows users to borrow against. Positioned as a blue-chip NFT index, Fungify provides a way for individuals to gain broad NFT market exposure without needing direct, and often hefty, investments into individual NFTs, while also earning yield from the interests paid by borrowers and through protocol fees. Moreover, it pivots as a lending protocol, particularly oriented toward collectors, furnishing an alternative for those desiring to borrow against their NFT without the overshadowing danger of liquidation. This derives from the fact that borrowing against the index implies that the unit you’re leveraging is significantly correlated with the NFT market, minimizing the risk of liquidation due to the index’s intrinsic link with blue-chip NFTs. This system, while based on the Maker DAO model, stands out because it tracks the NFT value rather than providing a stable coin equivalent, a distinct contrast to other protocols like JPEG’d. Therefore, it allows Fungify to offer a high Loan-to-Value ratio (LTV) starting at 75% and potentially extending to 85%.

Fungify’s index fund is initialized through an event named the ‘Great Fill’ where token incentives are provided to encourage people to deposit their NFTs into the vault. Within the index, there are also incentives to ensure a balanced representation. The definition of what constitutes a blue-chip NFT is based on the market cap and trading volume. Once the index is filled, NFT tokens are issued in return for the deposited NFTs. This leads to the establishment of a Uniswap V3 pool with concentrated liquidity. The peg price of the NFT tokens in this pool is calculated using Chainlink oracle prices for each collection in the index. The idea here is to ensure that there is a one-to-one correspondence between the value of the NFTs in the index and the number of NFT tokens.

Sellers can contribute to the index, with rewards and penalties based on how the sale impacts the overall balance. The penalties come into play when the index becomes unbalanced by more than one unit of a particular NFT. Borrowers, on the other hand, can put up their NFTs as collateral and receive NFT index tokens in return, thereby unveiling a liquid avenue while retaining ownership of the NFT. These tokens can then be utilized for various purposes, like staking, yield farming or trading.

Another noteworthy point in the discussion is the built-in marketplace feature of the protocol. This allows NFT holders to sell their assets while also borrowing against them, offering a cash advance on the NFT. Essentially, if one wants to sell an NFT but finds no immediate buyers, they can use the NFT as collateral to unlock liquidity and simultaneously list it for sale. This creates a dynamic where if someone purchases the NFT, the loan automatically closes, and the seller walks away with the profit.

The role of arbitrage in the system is also touched upon. If there’s a deviation in the open market peg, arbitragers can come in, capitalize on the opportunity, and help bring the token price back to parity.

One intriguing topic raised is the mechanism to short the index. A proposed solution involves a companion lending protocol where the NFT token acts as collateral. The team shared with us that they are in talks with a lending protocol about listing the NFT index token on their platform, therefore enabling people to spot short the NFT index. Over time, it’s anticipated that other lending protocols might also add the NFT token, allowing users to borrow it just like any other asset and sell it.

Looking into the Future

The team is planning an option to leverage multiple NFTs for a single loan, establishing a mechanism whereby the loan could become virtually non-liquidatable under certain conditions, especially when a diverse ensemble is bundled into one collateral. By creating a loan with all NFTs that form the Index in identical proportions, the loan would become almost risk-free.

A speculative concept introduced is the possibility of creating “non-liquidatable guilds”, where users might collaborate to construct a buffer against liquidation by combining resources. This socialized risk management strategy introduces a thrilling prospect for communal financial engagement within the DeFi space.

Big thank you to Mob and Alice for joining us and having a thrilling discussion! Follow Mob on Twitter: https://twitter.com/0xMob100

Listen to the full podcast episode with the following links:

https://open.spotify.com/episode/3iDgEeZd3ZaG6Hls1PWxeQ?si=c19918f07d2d4167

Twitter Spaces Recording (limited time only!):

https://twitter.com/nftperp/status/1664648092971302913

Fungify

Website: https://fungify.it/

Twitter: https://twitter.com/fungifynft

Discord: discord.gg/FungifyNFT

Docs: https://docs.fungify.it/protocol/introduction

nftperp

Website: https://nftperp.xyz/

Twitter: https://twitter.com/nftperp

Discord: https://discord.com/invite/nftperp

Docs: https://nftperp.notion.site/Protocol-Mechanism-nftperp-V2-8e4cb30f08b94aa2a576097a5008df24?pvs=4

Look At My JPEG on Spotify: https://podcasters.spotify.com/pod/show/lookatmyjpeg/

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