Third times the charm

Hey there, let me tell you about Abacus, again. This blog will introduce at a basic level how Abacus works and outline some of the larger changes.

TLDR:

• No more token!
• Appraiser funds can be directly borrowed. So Abacus now acts as a direct lending protocol as well.
• Positions are completely liquid (and gasless appraisal offers are available), so as long as nobody is borrowing against the pool that your position is in, you may remove it with no exit tax. Otherwise you’re making monies :)
• Appraiser incentive is directly from interest paid by borrowers, closure fee of 1%, any closure auction premium, and liquidation fee of >4%.

What can you do?

1. Create a pool
2. Appraise in a pool
3. Borrow from a pool
4. Sell to a pool

Create a pool

Anyone can create a pool for any basket of NFTs. The creator of a pool determines 8 factors that hold throughout the lifetime of a pool; NFTs linked, interest rate, collateral slots, tranche size, epoch length, token denomination, risk base, and risk step.

1. NFTs linked: All the NFTs that are connected to the pool. “Connected to the pool” means they have the ability to be sold into a pools liquidity or borrow the pools liquidity.
2. Interest rate: The rate paid by anyone who wants to borrow liquidity from the pool.
3. Collateral slots: The max amount of NFTs (out of the NFTs linked) that can be borrowed against or sold to the pool at once.
4. Tranche size: The valuation step that each tranche represents. For example, a tranche size of 0.1 ETH means that buying into the first tranche of this pool represents that an appraiser thinks the NFT is worth more than a value of 0.1 ETH, the second tranche represents a value of 0.2 ETH, etc… (To drive this home if a tranche size of 1 ETH means that the first tranche in a pool represents a value of 1 ETH, the second tranche represents a value of 2 ETH, etc…)
5. Epoch length: Pool are broken up into time periods called epochs for the sake of distributing interest earned. Therefore, epoch length determines the length of these spans of time.
6. Token: The token that will denominate a pools valuation.
7. Risk base: Set the minimum risk point reward to decrease sharpness of movement in the risk reward tradeoff of higher tranches. Lower risk base results in higher return rate differences between tranches.
8. Risk step: The movement of risk reward differential is based on the risk step.

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Once the creator submits these parameters the pool is created!

Appraise in a pool

Opening an appraisal position

Prospective appraisers may buy into tranches that align with their valuation of the NFT(s) linked to a pool. For example, if Alice would like to appraise in a pool with 100 Punks in it she should make sure that the tranche(s) she chooses to deposit liquidity into is aligned with her valuation of the lowest valued Punk in the pool!

*Appraisers will also be able to submit appraisal offers which cost no gas and don’t require any capital to be locked up until the transaction is executed!

Closing an appraisal position

Appraisers are not locked into a pool if they’re not earning money (i.e. if nobody is using it). For example, if Alice enters a pool, sets a lock time of two weeks, and no owners want to borrow from her pool within 5 minutes (or any amount of time no matter how short) she may remove the liquidity from the pool with no penalty. However, if Alice enters a pool, sets a lock time of two epochs, and a Punk owner comes to borrow from the pools appraisal liquidity, Alice is locked until either the loan is repaid or two weeks passes.

Note on risk/reward tradeoff

Higher tranches represent relatively higher risk than lower tranches in a pool. Therefore, appraisals in higher tranches receive a larger proportion of rewards than lower tranches (as determined by risk base and step parameters).

Sell to a pool

An NFT owner can sell their NFT into the Spot pool for the appraised NFT value. So, if an NFT is appraised at 50 ETH (this means there is 50 ETH worth of liquidity in the pool) then the owner of that NFT can sell it to the pool for 50 ETH.

Closure Auction

After a sale to a pool, an NFT is automatically put in auction which begins once the first bid is submitted. If the NFT sells for more than the appraisal value, appraisers split the premium and the payout amount is returned to the pool.

If it sells for less, the pool participants are either slashed or are returned the portion of their principal used in the closure payout. In this case the max collateral slots decreases by 1 until all the existing appraisal positions expire. At expiration, anyone can restore a pool which will replenish the amount of collateral slots that a pool can support.

Borrow from a pool

Borrowing is fairly straight forward in Abacus V1. If you own an NFT that is linked to a Spot pool with liquidity in it, you may borrow liquidity from the pool.

How many can borrow at once?

The amount of NFTs that can be borrowed against a pool at once is determined by the amount of collateral slots that pool was created with. The borrow LTV is 95% of the pools value. Interest rate to pay follows the interest rate of the pool being borrowed against. The length of a loan lasts for as long as enough liquidity is still locked in a pool. For example, if Alice, Bob and Charlie collectively lock in appraisals which appraise a Punk at 60 ETH (this means they’ve collectively deposited 60 ETH in appraisal tranches) and they all locked for two weeks, Pepe can borrow 57 ETH against his punk for a minimum of two weeks if he’d like. There also may be a case where appraisals are staggered, which gives loans higher levels of continuity (that is beyond the scope of this blog so come as about it in the discord if curious).

How do liquidations work?

Liquidations are completely time based. This means, as long as a borrower pays their borrowed amount back on time there is no liquidation. So if Alice, Bob and Charlie collectively lock in appraisals which collectively appraise a Punk at 60 ETH and they all locked two weeks and Pepe borrows 57 ETH. If Pepe doesn’t pay back loan within 1 hour of the epoch’s conclusion, Pepe gets liquidated!

A short note on why no token:

A token greatly limits speed, flexibility, and allowed level of risk taking that a protocol can operate with in its early days. We don’t see a reason to begin the protocol with a token until it has matured and been live for long enough to properly assess what the added benefit would be and how to implement it best.

Follow and join our community for more updates!

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