NFT20 is a decentralized exchange and protocol for tokenizing NFT projects as ERC20 tokens to make them tradable on decentralized exchanges such as UniSwap or Sushiswap. Anyone can add their NFT to the appropriate pool and receive ERC20 token derivatives representing that NFT project that can be traded on dexes right away. By creating a secondary market of ERC20 derivatives of NFTs, NFT20 hopes to address the liquidity problem in the NFT space. Addressing this problem allows for arbitrage opportunities, allows investors to gain price exposure to NFT projects without identifying and buying individual NFTs, and allows for fairer price setting and easier trading of NFTs by collectors and newcomers alike.
The history of NFTs has shown that a very small portion of NFTs stay valuable over the long term, with most NFTs losing their value after a few months and becoming illiquid.
For example, looking at sales of Crypto Kitties over the last week of 2020, we see a total of 1,051 kitties sold on secondary markets for a total of $23,000. However, the biggest sale that week was recorded at $1,200, with only 61 sales (about 5.8% of all sales) over $100. Most kitties would trade for only a few dollars. (source: CK on NonFungible.com).
While Crypto Kitties is one of the most popular NFTs, with nearly two million items held by nearly 100,000 addresses, the lack of liquidity for NFTs particularly impacts smaller projects. When combined with the high fees taken by secondary market platforms and their creators, NFT projects can quickly find themselves held back by the liquidity problem in the NFT space.
The goal of NFT20 then is to give project owners, collectors, and investors a better way to trade and value NFT tokens (ERC725 and ERC1155) by creating ERC20 derivatives of NFT projects using the NFT20 dex.
NFT20 allows users to receive ERC20 tokens representing NFT projects by depositing their NFTs into pools on the NFT20 dex. When you add your NFT to the NFT20 dex, you will deposit your NFT (e.g. your Doki Doki Gachapon) into the respective NFT project pool (e.g. the DokiDoki Finance pool), and the NFT20 Factory will create an ERC20 token representation of that NFT project, giving you 100 of these tokens for each NFT you deposit. If you don’t see an NFT pool yet for your NFT, you can always create a pool by depositing your NFT and following the process here. Project owners that want to take advantage of NFT20 as a way to provide easier trading and collection of their NFTs can look at the project owner guide here.
At first, we expect users to deposit low value NFTs into these pools, thus creating an average price per NFT per project due to OpenSea + Uniswap arbitrage.
However, if you believe you have a higher value NFT, you have the option of creating a decentralized dutch auction right within the NFT20 asset page to get paid a higher amount of the ERC20 tokens for that NFT project.
NFTs that are held in their respective pools can be withdrawn at any time by any user depositing 100 of the relevant NFT tokens. The user then picks which NFT available from the pool to withdraw. This feature makes the NFT20 dex not only a trading mechanism, but an NFT swapping mechanism as well.
Example1: Linda owns 1 NFT Crypto Kitty that she can’t sell, she goes to the Crypto Kitty NFT20 asset page and deposits the Crypto Kitty NFT and gets 100 $KITTY tokens. She can now go to Uniswap and trade them right away, or use them to provide liquidity on Uniswap for fees.
Example2: Katherine owns a Gen 0 Crypto Kitty NFT that she thinks is worth more then 100 $KITTY tokens, so she creates a dutch auction for the market to decide a fair price in $KITTY tokens. She can cancel the auction at any time if the NFT is not sold.
Example3: Enea owns a Gen 0 Crypto Kitty NFT and on the NFT20 Crypto Kitty pool he sees a Gen 1 Kitty he likes. He tokenizes his Gen 0 Crypto Kitty for 100 $KITTY tokens and redeems them right away for the Gen 1 Kitty he wanted.
In this section we’ll describe how various actors of the NFT ecosystem can make use of NFT20:
NFT holders: Collectors of any project can easily deposit their items in exchange for the associated tokens in order to get instant value and liquidity for their NFTs. NFT20 is also an ideal way to collect NFTs themselves, as the volume and liquidity guarantees a fair price for both sellers and buyers.
NFT creators: NFT project developers can create or support the pool for their NFT project on NFT20 as well. Having a healthy pool with good liquidity on a dex enables your users to easily trade their items together and allows newcomers to get items at a fair price. The pool can also be used as a sale mechanism for NFT projects while the pair is incentivized to get high liquidity.
NFT investors: Having access to tokenizied derivatives of an NFT project enables generic investors to speculate on the price of a collection without having to worry about identifying and buying individual items, as these operations can become pretty difficult. This attempts to address one of the outstanding problems in NFT investing: getting general price exposure to NFT ecosystems.
The parameters of the platform will be governed by a DAO managed by the $MUSE token holders. Here is what qualifying $MUSE holders will be able to decide:
Fees for the NFT20 dex that will be distributed to $MUSE holders.
Requirements for project approval for yield farming.
Team structure and marketing spend of DAO resources.
More to be decided.
Small demo of what’s to come
The $MUSE token’s main utility is serving as the governance token for the NFT20 dex.
However, holders of the $MUSE token will also be able to receive a portion of all of the 5% transaction fees collected by the NFT20 dex. When the fees are distributed, you’ll get fees from Doki Doki NFTs, NodeRunners, Chonker, and any other future assets added to the NFT20 dex, in the form of the ERC20 token derivatives for those NFTs. This means holding $MUSE gives you diverse and full exposure to the NFT industry through fees collected and returned in the form of the various NFT20 created ERC20 tokens for those projects. In the long term, $MUSE could be used as a hedge against the NFT industry itself.
Details on the mechanicism for collection of fees by token holders will be announced later.
$MUSE’s totaly supply is 1 million, with 500k distributed by end of February. 300k will be set aside to reward liquidity providers through yield farming, with an emission schedule of 500 tokens per day. Out of the remaining 200k, 100k will be vested over a 12 month period to the developers and 100k will be vested over a 12 month period to the DAO.
The $MUSE token was first distributed through our first game Very Nifty, which only just launched in September of 2020! Players of this game were able to mine the initial $MUSE supply, minting 400k of $MUSE, with an additional 100k $MUSE being rewarded to players of the Very Nifty game as V1 closes down in February. After NFT20 was created, a successful governance vote made $MUSE the official governance token for the new NFT20 dex and halted mining any future $MUSE rewards from the Very Nifty game.
NFT20 realizes liquidity is a big part of any dex. 500 $MUSE a day will be allocated as rewards to liquidity providers for the liquidity pools on NFT20. For the time being, the ETH-MUSE pool will receive the largest daily $MUSE emission of 250 $MUSE. The Chonker, Doki Doki Finance, and NodeRunner pools will each receive 83 $MUSE a day.
At the beginning we are going to incentivize NFT pools that have over $10k in liquidity on Uniswap or Sushiswap. This can change upon Snapshot voting, but we feel 10K liquidity for an NFT project is good enough for all users to have the options of buying or selling without waiting days on OpenSea for someone to bid.
We also created a new scheme to receive multiple yield sources from the same LP tokens in a safe way. **We’ll open source this together with the DEX. **We expect NFT projects to incentivize liquidity too, and we are already in talks with some of them.
Example: If you add liquidity to $PIGGY (made up NFT token) — Eth on Uniswap we will give you $MUSE tokens as yield, but the PIGGY project will also be able to give you yield for the same LP tokens.
We’re friends and have been following and working in the Ethereum space for over 4 years. Our latest project VeryNifty Gallery, a tamagotchi-like game, is still the #3 most played Ethereum game on DappRadar and has done more than 70,000 transactions on mainnet.
**Adam: **Serial Indie Maker.
**Jules**: Full Stack developer that joined the space as a smart contract freelancer. Co-founded DAppBoard (Google Analytics for smart contracts) in 2017. This adventure led to joining Consensys, where he worked on analytics for DEX platforms, smart contracts, and other products.
Reach out to us to see how your communities can benefit from the NFT20 dex and how we can work together. We are looking for long-term strategic partnerships for projects that want to incentivize liquidity for their users!
Disclaimer: Due to this being a community first project without any type of funding, we reserve the right to change the lite paper and tokenomics at any time until the day of launch.
EDIT: Post was updated on Jan 8th to edit tokenomic vesting and launch date.
EDIT: Post was updated on February 1st to update details based on NFT20 progress and $MUSE governance moving forward.