DeFi Base Camp: Sumeria Labs Thesis
The Merge of DeFi and NFTs
Although most known for birthing decentralized finance, blockchain tech also brought a new meaning to online collectability and ownership. Years after the creation of the ERC-721 standard, or better known as non-fungible tokens (NFTs), mass adoption came as users realized the potential of immutable and tradable art. Going from niche to mainstream, NFTs quickly became the entryway for the majority of new blockchain users. In August 2021, NFT markets saw $914M in weekly trading volume.
Within the last year, protocols have been created with the purpose of merging DeFi and NFTs. Many of the existing players enable NFT-collateralized loans, where a user can put up any ERC-721 token as a collateral to borrow tokens such as ETH from lenders. However, the illiquidity of NFTs has become a critical issue for protocol and user safety. In August 2022, a $41M liquidation cascade occurred on BendDAO due to the illiquidity and falling prices of NFT collateral.
Overview on Sumeria Labs and Zumer Protocol
Zumer Protocol, the first protocol created by Sumeria Labs, is a non-custodial liquidity protocol for NFTs. It utilizes a novel credit and liquidity risk management mechanism to allow permissionless loan origination for NFT assets by segregating different risks to different liquidity providers.
Zumer Protocol focuses on three aspects to improve upon existing NFT lending and borrowing protocols:
Security
To protect users, the protocol applies a real-world banking approach by adding a provisioning pool and an underwriter role. This provisioning pool or underwriter can repay lenders in case of a default even before the underlying collateral has been redeemed. Additionally, Zumer’s liquidation insurance also offers protection for NFT owners to avoid losing their ownership amid absurd market conditions.
Instant
With the protocol’s unique dual-pool system, NFT owners and buyers (through the protocol’s BNPL tool) can get instant liquidity from the protocol. Zumer also has a marketplace for borrowers to sell their NFTs.
Permissionless
Zumer has partnered with DIA, an oracle provider applying a decentralized price feed for NFTs, to enable permissionless loans. By utilizing this oracle, Zumer is able to price NFTs based on a set of rules written into the smart contract and lend out loans in a permissionless manner. Zumer will start with underwriting bluechip NFTs such as Bored Ape Yacht Club, Moonbirds, CryptoPunks, Azuki, Clone X, World of Women, etc.
Launching on Ethereum, Zumer will aim to capitalize on the largest NFT and DeFi communities in the web3 ecosystem. We’re excited to have participated in Sumeria Lab’s seed round as they are building better risk management, increasing capital efficiency, and improving on decentralization for NFT Finance.
The intersection of DeFi and NFTs does not stop at lending and borrowing, and the possibilities are infinite. If you are building a project that merges these two and are interested in exploring incubation/acceleration, please contact our Venture Manager at amber@neworder.network.
