Pawnfi seizes market time; NFT financial track grows
According to previous data from Nansen, after Blur launched the NFT perpetual lending agreement Blend, the agreement has facilitated more than 15,800 loans for 1.2 million independent borrowers and 1.6 million lenders, totaling 123,500 ETH($224.4 million).
Soon after, Binance Exchange also announced the launch of NFT lending services, indicating that the application of NFT in the financial field still has demand and market potential.
At the same time, Pawnfi, an NFT financial project funded by DCG, Coinbase Ventures and other top institutions, is also seizing the market opportunity in the near future and will launch the Early Access (Early Access) event. But unlike Blend and Binance, what Pawnfi builds is not just “NFT lending”, but a larger NFT financial ecosystem.
To fully understand Pawnfi, we must first start with the core mechanism of the entire protocol “P-Token”.
Pawnfi core mechanism: P-Token releases NFT Liquidity
P-Token is a new mechanism in the NFT field, which can “standardize the segmentation” of NFT, replace non-homogeneous tokens (non-standard assets) with ERC20 tokens (standard assets), and solve other problems while giving NFT liquidity and functionality in financial applications.
Flash Trade process
NFT holders can exchange NFT (eg: BAYC) for 1,000 P-Tokens (P-BAYC) representing BAYC NFT ownership through Flashtrade. The following is a schematic diagram:
It should be emphasized that for the protocol, NFTs will not have different values due to their rarity. Therefore, the flash trade of all NFTs is a constant 1,000. For example: any BAYC = 1,000 P-BAYC, any MAYC = 1,000 P-MAYC, any Azuki = 1,000 P-AZUKI, and so on.
How to exchange back to NFT?
When it comes to exchanging P-Tokens back to NFTs, most people will even think of the word “redemption”, but in fact this is wrong, because NFT holders do not mortgage NFTs to borrow P-Tokens, but replace NFT with P-Token.
After performing the flash trade steps, it is equivalent to giving up the ownership of the original NFT, and the NFT will be hosted in the protocol vault. When you want to exchange the NFT back, the user can perform the following two options through Flashtrade:
- Random exchange: Pay 1,005 P-BAYC (0.5% handling fee), and randomly exchange one BAYC.
- Specific exchange: Pay 1,015 P-BAYC (0.5% handling fee + 1% designation fee), and designate to exchange one BAYC (if the original NFT is still in the protocol vault, the original NFT can be retrieved).
It should be emphasized that the exchange of NFT is not the exclusive right of the P-Token generator, and anyone who holds enough P-Token can exchange NFT. This helps drive market arbitrage and maintains the fair value of P-Token.
Where does the value of P-Token come from?
P-Token, at its core, is an ERC20 token. This allows it to be traded on any AMM protocol, with a preset liquidity pool established on Uniswap (e.g., P-Token/ETH). Holders of P-Token can contribute to the liquidity pool at any time to earn transaction fees and additional mining rewards. Importantly, because P-Token and NFT exchange at a fixed ratio, market arbitrageurs can step in to adjust the market price of P-Token if it deviates from its intrinsic value.
Take for instance if the floor price of BAYC is 46 ETH, making the intrinsic value of 1,005 P-BAYC equivalent to 46 ETH. If the market value of P-Token falls below this intrinsic value, arbitrageurs can buy P-Token, swap it back to BAYC to sell, thereby adjusting the market price of P-Token and making a profit from the price difference. The same principle applies if the P-Token’s value rises above its intrinsic value.
Pawnfi realizes all-round financial application of NFT based on P-Token
The establishment of P-Token liquidity signifies a major breakthrough in the financial capabilities of NFTs. It essentially unlocks the application of existing DeFi strategies to the realm of NFTs, fully realizing their potential in the financial market. At Pawnfi, we’ve strategically designed financial applications tailored to this innovation, including NFT leverage, cross-margin NFT lending, and NFT consignment, among others. This is a transformative step forward in the integration of NFTs into versatile financial scenarios.
NFT Leverage
Although Flashtrade has released liquidity for NFT and allowed NFT to realize diversified financial applications, it is undeniable that there are still NFT holders who are unwilling to take the risk of losing NFT to obtain liquidity. For this type of user, “NFT leverage” will be a better choice,
Pawnfi’s NFT leverage is a “peer-to-peer” lending model architecture, but the borrower’s counterparty is not the user but the protocol itself.
Specifically, NFT holders can use NFT as collateral to borrow the corresponding P-Token to the protocol. The loan-to-value ratio (LTV) is close to 100%, but the actual number of P-Tokens that can be borrowed still depends on the “days of leverage (N)” and the “interest margin rate” (according to official documents, the initial margin rate is 10%) , the calculation method is: “1,000 x (1–10% x N /365)”, the borrower only needs to repay the loan within the time limit to redeem the original NFT. Example:
BAYC holders want to borrow P-BAYC in the next 30 days, and the borrowed amount is:
1,000 x (1–10% x 30 /365), or 991.78 P-BAYCs.
When repaying, you must repay the borrowed amount plus additional interest (interest is calculated based on the actual number of borrowing days). According to official documents, the annualized interest rate of leverage is 10%. Example:
If the BAYC holder repays P-BAYC on the 20th day, the amount to be repaid is:
991.78 + 1,000 x (10% x 20 /365), or 997.259 P-BAYCs.
In addition, the biggest advantage of Pawnfi NFT leverage is that it greatly reduces the risk of collateral and borrowed assets. Since the asset for leveraged is P-Token, no matter how the price of the collateral (NFT) fluctuates, the borrower will not have the risk of liquidation. However, if the borrower fails to repay the loan within the time limit, the NFT collateral will still be liquidated and moved to the Flashtrade pool for others to flash trade.
NFT lending
Pawnfi’s NFT lending belongs to the “peer-to-pool” lending model architecture. Its concept is similar to DeFi agreements such as Compound and AAVE , allowing all users to deposit tokens for lending, or use the deposited basket of assets as collateral for borrowing. This approach ensures that the liquidation line is not easily reached even in volatile markets. But the difference with traditional DeFi agreements is that in addition to using ERC20 tokens to lend or borrow money, PawnFi’s NFT lending agreement can also use NFT as collateral at the same time. Compared with traditional DeFi lending agreements and typical NFT lending more diverse.
It is worth mentioning that in Pawnfi’s NFT lending agreement, using NFT as collateral is equivalent to depositing 1,000 P-tokens in the agreement. In other words, the collateral itself can provide holders with additional interest income (in the form of P-token).
In terms of liquidation mechanism, liquidation will be triggered when the used loan limit exceeds 100%. The actual calculation formula is as follows.
Much like conventional lending agreements, the task of liquidation falls upon a liquidator. When liquidation is triggered, any participant can serve as the liquidator, assisting in debt repayment and securing collateral slightly exceeding the debt value as a reward. During this process, the agreement levies a 2.8% penalty on the collateral value, depositing it in the contract treasury. To avoid complete liquidation of the borrower’s position, we limit the amount that can be liquidated in a single transaction to 50% of the debt.
When a user’s collateral is an NFT, it is essentially deposited as a P-token (without affecting the user’s NFT ownership). For instance, when using a BAYC as collateral, the BAYC is escrowed in the contract, and 1,000 P-BAYC tokens are concurrently deposited into the pool on the user’s behalf.
During liquidation, the contract liquidates a portion of the P-token to repay the debt. As long as the user’s remaining P-token balance stays above a certain threshold, the user can replenish the corresponding P-tokens at any point and recover the original NFT. This design avoids immediate loss of NFT collateral during liquidation, offering more protection than other NFT lending protocols.
For example, when a user collateralizes a BAYC, equivalent to depositing 1,000 P-BAYC. If liquidation occurs, the user can replenish and recover the original BAYC anytime provided the remaining balance post-liquidation is >300 P-BAYC. However, if the user fails to cover the position and a second liquidation occurs, the deposited BAYC will be mandatorily liquidated and transferred to the Flashtrade pool.
Moreover, to prevent malicious price manipulation of P-tokens due to initially insufficient NFT lending liquidity, all price data pertaining to P-tokens will primarily rely on Chainlink, a decentralized oracle network, to capture floor price data of NFTs from platforms like OpenSea and Looksrare. Over time, the price feed weight of P-token’s TWAP oracle on Uniswap will incrementally increase.
NFT Consignment
Generally, NFT sellers can only release the corresponding liquidity after the NFT is sold. In order to meet the needs of some sellers eager to obtain Liquidity , Pawnfi will combine “borrowing” and “selling” to launch a new The application is called “NFT Consignment”.
Specifically, when users consign NFT on Pawnfi, they can get an advance payment from the agreement in the form of P-token. The calculation formula of the advance payment is: 1,000 x (1–10% custody fee x number of days of consignment/365). Example: When a user wants to consign BAYC at a price of 2,000 P-BAYC within 30 days, he will receive an advance payment of 1,000 x (1–10% x 30/365), which is 991.78 P-BAYC.
After successfully placing an order for consignment, there will be three possible scenarios:
- Successfully sold
Assuming that the user’s BAYC is bought at a price of 2,000 P-BAYC on the 20th day, the platform will charge 1% of the price difference as a handling fee, and send the remaining funds after deducting the prepayment and the unused custody fee to the user . Therefore, the actual P-BAYC obtained by the user = 2,000–1% price difference commission — 20-day custody fee, which is 1,984.52 P-BAYC.
- Do not want to sell anymore
If the user regrets not selling after N days, the user will have to repay the prepayment plus N days of custody fees to redeem the NFT.
- Item is not sold by the due date
If it is not sold by the due date, the user must repay 1,000 P-BAYC to redeem the NFT, otherwise the NFT will directly flow into the Flashtrade pool for flash trade.
Pawnfi Token
According to official documents, Pawnfi will soon issue the governance token PAWN, which has the governance function of the protocol. The design of the governance module refers to the typical ve (Vote escrow) model, and the holder needs to lock the PAWN token in SAFE contract, and obtain corresponding governance rights according to the selected lock-up period.
At the same time, users can obtain PAWN tokens in the form of liquidity Yield Farming rewards by providing Liquidity for P-token and providing Liquidity in the NFT lending pool.
Combining governance and Yield Farming incentives, PAWN tokens can derive multiple value capture capabilities, including:
Improve personal mining income
When the user locks PAWN in the SAFE contract to participate in governance, it can simultaneously increase (Boost) personal Yield Farming rewards, which can be increased by up to 2.5 times according to the lock-up share and the selected lock-up period.
Sharing agreement income
Pawnfi’s lending module will distribute 50% of the platform’s fee income to users who lock PAWN in the SAFE contract on a weekly basis. These incomes come in various forms, including ETH, USDT, DAI, and P-Token, which can contribute to governance participation. provide additional incentives.
Start “Pawnfi War”
Similar to DeFi protocols such as Curve Finance, the governance rights of PAWN can determine the distribution of rewards for Yield Farming. For example: Pawnfi’s lending pool supports P-BAYC and P-PUNK. In order to improve their respective profitability, the community will compete with each other and vote for their own pools to maximize their profitability.
For example, in order to increase the depth of the lending pool, the BAYC community may choose to “use the DAO treasury to buy PAWN tokens to vote for its own pool”, “provide Ape token rewards for those who voted for itself”, or “provide Liquidity Provider provides additional Ape token rewards, etc., bringing the typical “bribery model” in the DeFi ecosystem into the NFT market, and thereby enhancing the value of PAWN as a governance token.
Pawnfi Summary
Generally speaking, since the background of the team is mainly from the traditional financial field, the design of Pawnfi covers almost all financial application scenarios related to NFT. The scale of the entire ecosystem is quite large, and the potential development space is quite worth looking forward to.
Currently, Pawnfi is conducting an Early Access (Early Access) event. It is said that participants have the opportunity to get a potential AirDrop of tokens. Those who are interested can pay attention to the official website , follow the official Twitter , and join the Discord community for more information. relevant information.
About Pawnfi:
Pawnfi, the Pioneering NFT Liquidity Initiator, is reshaping NFT finance with our comprehensive All-In-One system. We cater to everyone in the NFT community, from holders and traders to newcomers, providing a platform to effortlessly trade, lend, and earn. Experience the transformation of NFT finance with Pawnfi, where every user can tap into the full potential of the NFT ecosystem.
Website: https://www.pawnfi.com
Twitter: https://twitter.com/PawnfiOfficial
Telegram: https://t.me/PawnfiAnn
Medium: https://blog.pawnfi.com
Discord: https://discord.com/invite/pawnfi
Docs: https://docs.pawnfi.com/
