A new horizon for NFT projects: NFTfi-as-a-service
Zumer shapes the way for a novel revenue structure for NFT projects
Amidst declining transaction volume and the rise of royalty-free marketplaces for NFT traders, NFT projects are struggling to generate recurring income from their collections.
Stepping in at this crucial point in the market’s history, Zumer is building an NFTfi-as-a-service product that serves NFT projects, marketplaces, and wallets. Zumer allows projects to offer BNPL and collateralized loans to their holders and users while simultaneously earning a passive income.
Zumer Protocol’s straightforward lending mechanism consists of two main roles: underwriter and lender.
- Underwriters: Members willing to take the price volatility risk during liquidation and the duration risk (lockup required). They enjoy a higher yield from the interest pool collected from the borrowers. You could imagine this is like investing in the junior tranche of a structured product.
- Lenders: Members who are more risk-averse and accept lower returns for the safety of funds. Liquidity provided by the lenders is safe-guided by the underwriter pool. Similarly, this is like investing in the senior tranche of a structured product.
Our model equally invented an on-chain reserve mechanism called “underwriting factor” or “provisioning reserve ratio.” This is the percentage of capital protection by the underwriting pool to the lenders.
For instance, when the underwriting factor is 100%, the liquidity would fully cover 100% of the lending pool liquidity (from lenders) in the underwriter pool (from underwriters).
As the project develops, we plan to roll out products with less than a 100% underwriting factor. In this case, assuming an underwriting factor of 80%, both lenders and underwriters would be able to receive a leveraged return with a higher volatility/risk.
In terms of our loan pricing strategy, for both BNPL and collateralized lending, we are building the following robust model based on the traditional banking system:
- Lending rate = base rate (benchmarking to the average ETH yield in the market) + credit cost (potential default rate of individual NFT project, ranging from 10–20%) + underwriting fee (for the protocol)
As such, the interests collected would be allocated to three stakeholders: lenders, underwriters, and the protocol.
Underwriters in our system will enjoy a maximum of 10–20% yield and potentially receive the extra emission of the protocol’s token if their capital utilization is close to 100%.
Lenders, in this case, would be sharing the remaining interest, i.e., the base rate component.
It is, by default, set to 5–7% temporarily. We will liberate the rate determination at a later stage of development.
So who should be the underwriter?
Underwriters can be NFT projects. To further elaborate, we will take the example of Azuki team. For instance: the Azuki team wants to fully utilize its excessive capital/idle capital. As such, they allocate some of the capital to deposit into our protocol’s Azuki underwriter pool to act as the underwriter. Consequently, Azuki holders or potential buyers could utilize our protocol to get liquidity or finance their purchases.
Simultaneously, community members could choose to provide liquidity to the lender pool and receive 5–7% of the yield, with the Azuki team acting as the guaranteed back-stop for liquidation protection as underwriters would absorb all the losses from collateral liquidation. During a liquidation event, Azuki team could choose to absorb all the defaulted Azuki NFTs and keep them in their treasury to reduce the NFT supply.
Four benefits arise from being the underwriter for NFT projects. First, underwriters earn an above-average risk-adjusted return from our system. Moreover, NFT projects could utilize their idle capital to facilitate more transactions by offering BNPL and loans to their potential and existing holders, i.e., liquidity injection, to the system. Essentially, projects will be the Fed of the system.
Furthermore, during a liquidation event, projects could choose to keep the defaulted collaterals, preventing them from flowing to the market to create a negative spiral of prices. Finally, community members of Azuki could enjoy a deposit product safe-guided by the Azuki team, thus building a novel way to retain your community members.
If our guide to Zumer peaked your interest, please reach out to the Zumer team for discussion, as we can tailor and customize our solution for your projects.
