Tamago Finance
Search…
Value-backed NFT πŸ’°
Aka. Synthetic NFT
Ang Pow, the first value-backed NFT mimics the value of $1, $10, $100
Much of NFT pricing is based on speculation without competent evidence or any foundation, the value-backed NFT is a decentralized, non-custodial, algorithmic non-fungible token backed by the collateral asset and each presents the specific amount of currencies, commodities and digital assets aim to solve the illiquid problem of traditional NFT as well as reduce risks open door of opportunity.
The protocol combines 2 mature approaches from DeFi adopts into NFT which are synthetic asset issuance (Synthetix, UMA) and undercollatelization loan (Frax Finance) ensure stability and resilience are met for the needed of being financial assets and recognized by wider communities.

Stability Mechanism

NFT can be minted and redeemed as its price tag when the collateral ratio is equal to 100%, however it's unlikely that the ratio will be maintained at 100% all the time due to volatility of collateral token prices.
We propose the mechanism to dynamically adjust the collateral level to be used during mint and redeem actions to help the ratio pegged at closer to 100%, at the beginning, users can create new NFT in debt form by depositing collateral assets into the smart contract and if the value of underlying collateral lower than the 100%, the redeemer have to send out a portion of collateral to be remained on the smart contract in order to adjust the ratio gradually shift back to 100%, the discount will be given when the ratio is higher than 100% with the same purpose.
y=log⁑b(kx+1)y=\log_{b}\left(kx+1\right)
The given formula is used to calculate the offset fee and the discount that will be applied when:
x = Current Collateral Ratio, y = Target Collateral Ratio
b = Logarithm base, k = Constant, vary by the volatility
When minting and redeeming occurs on the protocol, the target ratio has been calculated according to the current ratio at that time and constants defined by the team.
How the protocol controls the price

Minting

The protocol allows anyone to mint the value-backed NFT which is ERC-1155 complaint and can be traded on any well-known NFT exchange such as OpenSea. It's recommended the minter takes particular note of the rules that have been enforced by the smart contract to avoid further confusion.
At the very beginning, the $100 NFT can be minted by placing $100 of value into the system, each variant of NFT has its own vault and the collateral ratio must be calculated separately.
The vault is separate for each variant
When the collateral ratio is higher than 100%, there will be an arbitrage opportunity to mint the NFT as special price, the discount will be greater when the collateral ratio is far away from 100% and eventually bring the ratio down to the normal state.
Let's take the example if the variant's collateral value equals to $12,000 and the outstanding NFT value equals to $10,000 ($100 NFT x 100 Units Minted) then the collateral ratio is 120%, the target ratio has been calculated from the given formula to bring the ratio down, presuming that the target ratio is 110% then we have $1,000 to giveaway as a discount, to mint $100 NFT we need to deposit only $100-($1,000x$100/$12,000) = $92.

Redeeming

The redeemer can claim back the full amount of collateral when the ratio is higher than 100% as there are sufficient collateral assets locked in the smart contract to pay it back while the offset fee will be deducted when the ratio dropping below than 100%.
Collateral Ratio
NFT Variant
Redeem Price
70%
$100
$65
90%
$100
$97
100%
$100
$100
120%
$100
$100
​
For example, if the variant's collateral value equals to $9,000 and the outstanding NFT value equals to $10,000 which means the ratio = 90%, the smart contract will calculate the target ratio to be achieved in a single transaction, assuming that the target is 95%, $500 is needed to shift the ratio from 90% to 95% then the offset fee will be charged regarding to the size of NFT to be redeemed, in this scenario the $100 NFT will be redeemed as $100 - ($500x$100/$10,000) = $95.
Last modified 19d ago