@bapak_algoritma
I’m just doing a quick read on the web. How does Drops determine the NFT price as collateral? Is there any liquidation risk?
Darius Kozlovskis
For the collectible NFTs their value will be determined by the fractionalized ERC-20 tokens trading on DEX. NFTs will have dedicated pools and their fractions value will be determined by the market.
Also technically it’s not the NFT itself that is used as collateral, but the ERC-20 fractions. So they can be liquidated easily.
Rowan Zwiers
As NFTs are about unique tokens, how will there be enough DEX liquidity for fair price discovery to base the NFTs value on?
Darius Kozlovskis
We have a thing called “Undercollaterilized NFT liquidity”, where anyone can supply liquidity with ETH, without having to own NFT or its fractions.
Daniel Dal Bello
Love to talk more about this topic. You’re introducing an “under-collateralized” liquidity model for dNFT tokens.
Can you please walk us through this model?
Darius Kozlovskis
Yes, users would supply ETH to a contract, which in turn would mint the corresponding amount of NFT-ERC-20 tokens, create LP [tokens] and lock it up. This way a user is able to supply liquidity without owning the NFT. Also, we’re going to have under-collateralization limits, to keep the system healthy.
Right now NFT fractionalization solutions have ERC-20 tokens that are 100% backed by NFTs. We are creating a model where 50–70% of ERC-20 tokens would be backed by NFT.
Users that don’t have NFT or ERC-20 fractions, would supply ETH to the pool, which in turn would mint fractions required to create liquidity. Then LP tokens get locked and the user does not have direct access to them. So NFT LP providers act as insurers of the NFT price.
If the user supplies the amount of ETH that would make NFT backing below 50%, the transaction would get reverted.
