Discovering true NFT liquidity with THEOS
Despite the fact that NFTs have garnered significant attention across the crypto and DeFi verses, they are still part of a market that has yet to show its true colors. NFTs are walking along their first stages, and just starting to blossom into an eruptive force of nature that is poised to reshape our environment. Currently, they mostly run on the Ethereum blockchain and are bought and sold via various online marketplaces and platforms. While many of these marketplaces provide a well-established and solid foundation for trading, they lack the true liquidity that markets need to thrive.
The Concept of Liquidity
Liquidity represents one of the true foundations of DeFi. Liquidity pools replace traditional middlemen through an assemblage of funds locked within smart contracts that allow trades to be executed unilaterally, with decentralized exchanges — or DEXs — taking the other side of a trade. Liquidity pools have been leveraged through the use of Automated Market Makers — or AMMs. For there to be funds inside the smart contracts, users — called Liquidity providers (LPs) — are required to deposit both assets. In exchange for the liquidity provided to the pool, LPs are compensated in the form of protocol trading fees charged by the said pool. Overall, these pools help bootstrap liquidity within the network, maintain the decentralized nature of the crypto markets, and provide seamless trading without the need for intermediaries. You can read more about liquidity and liquidity mining here.
NFTs and Liquidity
Being inherently unique by nature results in NFTs being burdened by several shortcomings. Due to the complex process resulting from pricing and trading unique assets, NFTs suffer from liquidity shortages. Moreover, there are currently no alternatives as to earn passive income with NFTs, thereby limiting their utility and only enticing their trading by the promise of price appreciation. Fundamentally, this means that creators can only earn a profit from the increase in the value of the NFT and subsequent purchasing of it to complete the sale.
As the market continues to grow, additional liquidity is destined to continue to pour in from new entrants, helping it further expand and permeate new boundaries of application. However, this long-sought liquidity the NFT market awaits requires incentive mechanisms that are not yet present. DeFi systems and solutions are currently being built to establish the underlying architecture required to fully support instant and seamless liquidity to fully release the true power and use case of NFTs. This is the essential missing piece needed to ultimately attract investors spanning from an institutional to retail level on a major scale.
Our Vision and Foundation
Providing instant and seamless liquidity is at the forefront of our agenda — we’ve stepped in the ring to find the most optimal solution for this issue. Ultimately, our grand vision is to create an ecosystem consisting of a vast NFT marketplace where sufficient liquidity is available at all times to enable better price discovery, all in an environmentally-friendly fashion. We’ve designed our protocol to utilize AMM systems from external DEXs to merge the benefits of DeFi with digital NFT creations in a coherent and fluid ecosystem, giving all creators and artists a full range of services.
As introduced in several other posts, we intend to ultimately make the THEOS platform available on Cardano. Cardano is the next-generation blockchain that powers and lays the foundation for our protocol. Currently being able to handle anywhere from 50–250 TPS (transactions per second), Cardano is poised to have the capability to process over 1 million TPS in the future via its Hydra upgrade. On account of these features, it has the potential to become one of the most efficient blockchain infrastructures. THEOS aspires to tap into its billions of dollars of idle liquidity and ultra-high speeds to create smooth and efficient transactions with NFTs. Cardano’s blockchain technology also provides microscopic transaction fees to make trading sustainable and easy. Through its smart contracts and underlying technological infrastructure, the NFT trading and DeFi experience can operate at full capacity and efficiency.
Now that we’ve reviewed our long-term vision and fundamental technology, we’re going to discuss how the different elements within the THEOS ecosystem operate together to source liquidity for NFTs. Additionally, we’ll demonstrate how with THEOS, anyone can bring liquidity to anything — it’s a creator’s paradise, where the potential is limitless.
Sourcing Liquidity on THEOS
At THEOS we have developed several ways to funnel liquidity to NFTs. With two pools that leverage the concept of traditional AMMs — such as Uniswap or SushiSwap — auction mechanisms, and more, we consider ourselves to be pioneers at this practice.
The first mechanism entails our experimental ODYSSEY pools, where users deposit their NFTs and are issued fungible tokens in return. Born from the need for liquidity, liquidity pools will be created for each pool token on secondary markets, thereby granting instant liquidity to NFT depositors. Alternatively, users can remove their NFTs from the pool by burning these fungible tokens. By virtue of the process, depositing and withdrawing NFTs from the ODYSSEY pool is straightforward — and comes with low price impact (depending on the depth of the liquidity pools) and extremely low transaction fees powered by Polygon.
The second is the DELPHI pool, where NFTs are staked and users receive vested fungible tokens in return. This pool is different in that it’s a personal mining pool that uses NFTs as the main source of liquidity without having to sell them. We’re bringing previously unavailable liquidity to NFTs, making any digital creation on our platform tradeable in some way, shape, or form.
Price discovery indirectly feeds liquidity. Our auctions are the third mechanism where prices can be organically obtained for creators’ NFTs. THEOS offers four different auction types that are all conducted on-chain via a toolbox, allowing for diversification options amongst our user base. The first is the English auction, where the NFT owner sets the initial price and end time, with bidders’ asks being fully transparent. The second is the Dutch auction, where the initial parameters are the same as an English auction, but the NFT’s price progressively decreases until a bidder agrees to purchase it at the current price. The third is a Sealed bid, where the NFT owner has control over setting the lowest possible price and end time — every bidder agrees to a hash of their bidding price, and the highest bidder amongst the group is deemed the winner. Lastly, Vickrey auctions are designed so that the highest bidder wins, but the price of the second-highest bid is what is paid. As you can see, each auction presents a unique way to generate optimal NFT price discovery and with greater user involvement and participation.
To keep the THEOS engine up and running, staking is an essential function that helps further drive community support and involvement. Liquidity mining incentives have been live since the IDO, and our native token $THEOS will be enabled for staking at a later version — giving platform users several attractive perks and rewards, further driving its use cases. The more users buy $THEOS and stake it through liquidity providing, the stronger and more liquid it becomes.
Equal opportunities to take creations to the next level are at the front of THEOS. With higher liquidity, users are more likely to transact and monetize their creations, given that they trust the efficiency and scalability of our platform. In addition, they’re incentivized to provide liquidity and contribute to our community, which creates building blocks that will generate a snowball-like effect and assist us in growing our ecosystem to the fullest.
Learn more about THEOS and all of our novel mechanisms in our whitepaper. Watch this space for further details, as we will be unveiling in-depth descriptions of each of our features soon!
About THEOS: The THEOS ecosystem is managed and sustained by our Association, a team of both traditional finance and blockchain virtuosos. We envision a new way of thinking, minting, and trading NFTs, and have developed what we believe is going to become the next-generation community-governed NFT platform. THEOS will become the first NFT platform in Cardano, the blockchain with the highest potential out there.
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