Revenue

• Charging a cut of interest
• The Lemur treasury lending on its markets

There are two straightforward ways for the lemur protocol to generate returns. One is collecting a percentage of interest. We are planning to collect 10–20% of interest. IE If the interest rate is 40% and we collect 10% of the interest, then 36% will go to the lender and 4% to the protocol. NFT loans are unlikely to be a commoditized market where protocols compete strictly on interest rates. Users will choose based on safety, liquidity, and integrations. Lemur can afford to collect a reasonable fraction of interest. Capturing 10–20% of interest will represent cash flows equal to ~2–4% of TVL if the average interest rate is 40%.

The other source of returns is profit from the Lemur treasury lending on its markets. Lending both increases liquidity and captures profits for LEMUR holders. The Lemur treasury lending also improves the experience of borrowers. Depending on market conditions, lending could represent much more profit than charging a cut of interest rates.

Token Utility and Value:

• At least half of protocol revenue earmarked for buy and burn
• LEMUR holders pay lower fees
• Airdrops of any future tokens associated with Lemur

Buy and burn provides consistent buy pressure to maintain prices and makes the token deflationary. Users will be able to stake LEMUR to receive fee discounts. Lemur has to evolve with the NFT marketplace. Most products will make sense as straightforward parts of the Lemur protocol. Some products will need their own token, such as if Lemur expands to a new chain. If we release a Lemur ecosystem token, we will airdrop tokens to LEMUR holders.

We consider FTT a successful example to emulate. FTT primarily accrues value through fee discounts, ‘buy and burn financed with protocol revenue,’ and enhanced access to ecosystem tokens. FTT gives other benefits: free ERC withdrawals and bonus votes in polls. Lemur adds full on-chain governance to an already successful combination.

A significant benefit of DAO governance is that the community is incentivized to develop new use cases. Other ideas for generating token value:

• Eventually, lending funds will develop. Lending requires a certain level of knowledge of the NFT market. These funds will bring in extra liquidity from passive lenders who do not want to deal with the overhead of managing their capital and risk. Directly integrating with the Lemur protocol will require that significant amounts of staked LEMUR be used as collateral by the fund managers to incentivize honesty.
• Votes to temporarily promote a collection. Promoted collections would be featured prominently and enjoy lower fees. Votes would be determined by LEMUR staked.
• Priority access to and lottery tickets for Lemur NFTs.

Permissionful

Products such as NFTfi operate on the following permissionful model:

• Borrowers list their NFTs and desired terms
• Multiple lenders deposit an offer
• Back-and-forth haggling occurs until an agreement is made with a lender (if at all)

The benefit of this approach is that each NFT can receive its own valuation, which is attractive in a marketplace where NFTs of the same collection vary in value in ways that only humans can assess.

However, the vast majority of a collection’s volume will be NFTs whose price is near the floor. For valuation purposes, these NFTs are quite interchangeable.

More importantly, there is so much labor and opportunity cost involved for lenders, that borrowers must accept very high interest rates (averaging ~78% from Oct 2021 through Feb 2022) in order to find a match.

This manual model can’t scale.

Protocol Risk

Any permissionless lending protocol faces the same fundamental question: How do you valuate the NFTs?

Other protocols aim to use on-chain data to automatically valuate NFTs using one of two approaches: derivative tokens and floor price oracles.

We believe that both of these approaches will fail to protect lenders. They are highly manipulable and expose lender funds to attacks on the protocol.

Consider the landscape of NFT collections for a moment: some individual founders & collectors own ~20% of a collection’s supply, entire communities coordinate in private Discord channels only accessible to holders.

Floor price oracles

Manipulating the floor price is not very costly if ownership is highly concentrated. With a large enough pool of lenders the payoff could be very substantial.

In the case of Pixels.so, the protocol defends against manipulation risk by providing very conservative valuations.

Honey Defi attempts to defend against rapid manipulations in floor price by averaging over a 7 day period. Given that the attack has little financial cost to coordinated holders, we think 7 days of manipulation will not be much more difficult than 1 day. Furthermore, in the case of a normal price crash, lenders will be stuck continuing to offer loans at 50% of pre-crash prices for some time.

Another important note here is that floor-price based strategies of lending are a strict subset of our order book model. We can allow for strategies following 33% of the floor price, or having a multiple variable model, or a human fund manager. All interacting with the same order book.

Derivative tokens

Protocols like NFTx and Solvent create fungible tokens redeemable for random NFTs in a collection. The price of these tokens should track the floor value of the NFT, so protocols intend to use these prices to valuate NFTs for loans.

However, as seen with NFTx, and very recently with Solvent, derivative tokens have the very big issue of high slippage. This problem likely remains intractable as the liquidity in these markets will likely never be high enough relative to the market cap of the NFT. So in addition to high slippage, whales and coordinated holders will always be able to manipulate the derivative tokens and drive up valuations.

Lemur is a peer lending protocol that provides instant liquidity on NFTs. We think it is likely that NFTs will become increasingly important to global finance. In particular, NFT-ized mortgages will eventually become a multi-billion dollar market in several countries. Our goal is to be the top nft-financialization platform by the time that happens.

There is significant current demand, so it makes sense to launch once you have an attractive and safe protocol. Lemur avoids two serious problems with current and upcoming nft platforms: either protocols can’t safely handle price manipulation, or they are too permisionful and can’t easily scale. We chose Solana because it is the highest performance blockchain currently available and it has a very active NFT market. Let’s talk about the protocol.

Highlights

• ⚡ Instant liquidity
• ☘️ No protocol risk from mis-valuation of assets or illiquidity
• 💰 Tradable positions for both borrowers and lenders

Protocol Design Overview

Lemur uses an order book to match borrowers to lenders providing fixed-term, fixed-interest loans.

Lenders decide the size of loan they are willing to offer for any NFT in a given collection, and borrowers can take any order on the book. Borrowers can only withdraw a loan up to the size of this bid.

After the loan term ends borrowers can repay the principal + interest to redeem their escrowed NFT. Otherwise the loan defaults and the lender redeems the NFT instead.

Initially, loans will all be 2 weeks in duration and interest will be fixed.

The majority of volume is near the floor so we will start by offering liquidity on floor NFTs.

Tradable Positions

Once a match is made, sides of a loan will receive NFT assets representing their position.

• Lenders receive Promissory Notes which guarantee they will receive either the debt or the collateralized NFT in the event of default
• Borrowers receive Loan Receipts which guarantee they will receive the collateralized NFT if the debt is paid

This unlocks many capabilities:

• Lenders can liquidate their position by selling promissory notes (using the same order book that borrowers use to take loans if desired).
• If a borrower cannot repay their debt, they can sell the loan receipt instead of defaulting. The loan receipt buyer can now repay the debt themselves and redeem the NFT, so the value of the loan receipt is simply the value of the NFT minus the debt.
• Anyone can build loan markets & other products on top of Lemur

We will share more about the protocol and its history in the coming days. Next up: A comparison of Lemur and competing protocols.