NFTperp is a decentralized application on L2 solution Arbitrum. The product allows users to open perpetual futures positions on NFT collections. What are the risks and prospects of the project? Let’s find out!
NFTperp was launched on the 7th of April, 2022. It utilizes a vAMM model (pioneered by Perpetual Protocol) with modification. It is a visionary product, with decentralized protocols and an MVP version open to anyone.
- Holders of NFT tokens, who are ready to open short positions to hedge risks
- NFT traders
- Newcomers to the NFT sector looking to profit from the collection
– The NFTperp protocol collects real-time information about the minimum price of a collection on the spot market via a Chainlink oracle
– The data goes to the vAMM protocol
– vAMM is a market maker protocol, which contains the spot price of the asset as well as all open positions
– Traders open their positions via the NFTperp interface, everything is collateralized by ETH (base margin)
– The collateral goes to the smart contract vAMM protocol
– Depending on the collection price, position holders take profit or incur losses
– To balance the open positions, the dominant side pays the financing rate
- A financing rate is needed to balance the market, to motivate to open trades on the minority side
- In favor of the dominant party, most of the trades are open in percentage terms
– No order book
– No liquidity pools
– The profit of some traders is formed from the losses of other traders
– All the funds for the open positions are stored on the vAMM-protocol
– The vAMM-protocol makes settlements of users’ trades
– The financing rate is also paid via the vAMM-protocol
– Settlement period — every 8 hours
- The first stage of liquidation: when the margin falls to 6.25%, 25% of the initial position is liquidated
- Upon further decrease of the margin by 2.5% the position is liquidated completely
- Upon complete liquidation of a position, the protocol takes over 1.25% of the liquidated deposit. The funds are deposited into the insurance fund
– A position with x10 leverage is opened, its cover is 1 ETH
– The position goes out to 10 ETH: 1 ETH is secured and 9 ETH are borrowed
– The position is Partial liquidated at the price of 9.375 ETH
– The position is liquidated completely at the price of 9.125 ETH
Commission fee from each open position — 0.3%.
– 0.15% goes to the insurance fund
– 0.075% goes to the project pool
– 0.075% are distributed to future token stackers
An additional dynamic commission model occurs if
– The difference between the futures price and the oracle price is 2.5–5%: 1% fee is for long positions and 0.1% is for short positions
– The difference between the futures price and the oracle price >5%: 5% of charges is for long positions and no charges for short positions
– A mistake in vAMM’s economic model
People from Huobi Ventures and developers from other DeFi projects worked on the construction of the protocol. The system economic model is built logically, and the mechanics of the protocol are improved. But there is always a risk of system error and unforeseen circumstances.
– A hacking of a smart contract
There has not been an external audit yet and there is no way to view the smart contract code, but even after the audit, there are always people who can hack the protocol
Unforeseen market circumstances
The market is highly volatile and unpredictable at times, the NFT sector is even more vulnerable to this risk. There is no guarantee that some projects will not suddenly collapse. According, there might be a cascade of liquidations of traders’ positions and protocol malfunction.
– There is an insurance pool, accumulating half of all charged transactions for financial insurance against such cases
The project has no token at the moment. It is planned to be launched in the 3–4 quarter of 2022. There are already staking and commission fees:
– Staking is a red flag as the DeFi sector has shown, sooner or later we will have to incentivize holders to stake tokens rather than sell
Token fees are a tool to curb the number of tokens since they are likely to be burned
Number of unique addresses — 150
Number of collections in the listing — 1 (BAYC)
It will depend on:
– what derivatives to which collections the protocol will be casting
– how to select these collections
When listing only BAYC, MAYC, and CryptoPunks, the product will be used mainly to hedge its spot positions.
When listing top-10/20 projects including Azuki, Moonbirds, etc, the product can become a full-fledged exchange for traders to make money, because there are no similar products at the moment.
The plan is to implement stop-losses, limit orders, lending and borrowing
2 issues with the project’s scaling:
– How quickly the product scales to the Solana ecosystem?
– How stable will Arbitrum work?
- The project is at the earliest stage with no team representation.
- The product will work as a hedging tool
- There is a perspective for expansion. At the moment, it is possible to take part in the testnet or to farm tokens. Now it is an investment in an idea before it becomes a mainstream
- Seed and private rounds of investments should pay off. The project can attract an audience
We’d love to hear your thoughts on the NFTperp project in the comments below. If you like this article, subscribe to our Medium Feed for more content like this. Stay tuned!
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