A Detailed Explanation of PawnFi: The NFT Liquidity Engine Invested by Star Institutions like DCG and Dapper Labs
A detailed explanation of PawnFi's mechanism, product experience, early bird activities, etc.Author: Salter, ChainCatcher
The NFT-Fi project PawnFi, backed by star institutions like DCG and Dapper Labs, is currently in the Early Access phase. Participants can not only experience a full range of features including trading, lending, and collateralization, but also have the opportunity to earn rewards in the upcoming PAWN token. This article will provide a detailed explanation of PawnFi's mechanisms, product experience, early bird activities, and more.
Project Introduction
PawnFi is a one-stop solution focused on unlocking NFT liquidity. Its innovative fragmented P-Token mechanism converts NFTs into corresponding P-Tokens at the smart contract level, granting NFTs liquidity equivalent to ERC-20 tokens. The aim is to become an NFT liquidity engine, thereby creating an efficiently liquid NFT ecosystem.
The biggest bottlenecks currently facing the NFT market are:
- The indivisibility of NFTs makes it difficult for blue-chip projects to enter, resulting in poor liquidity.
- A lack of application scenarios and new narratives for blue-chip projects.
- Most NFTs have not been endowed with stronger financial attributes.
P-Token is the most innovative aspect of PawnFi. Simply put, each NFT will have a corresponding ERC-20 token, referred to as P-Token, with a conversion ratio of 1:1000. P-Tokens and NFTs can be converted back and forth.
For example, one BAYCFT can be exchanged for 1000 P-Tokens specifically for BAYC (P-BAYC), and one MAYC NFT can be exchanged for 1000 P-Tokens specifically for MAYC (P-MAYC).
P-Tokens are ERC20 tokens, and their core value lies in the fact that they can be traded on any AMM protocol and establish preset liquidity pools on Uniswap (e.g., P-Token/ETH). Holders of P-Tokens can contribute to liquidity pools at any time to earn trading fees and additional mining rewards.
Additionally, since P-Tokens and NFTs can be exchanged at a fixed ratio, there exists a certain arbitrage space when the price of P-Tokens deviates from their intrinsic value. For instance, if the floor price of BAYC is 46ETH, then the intrinsic value of 1,005 P-BAYC is equivalent to 46ETH. If the market value of P-Tokens falls below this intrinsic value, arbitrageurs can buy P-Tokens, exchange them for BAYC, and sell them to adjust the market price of P-Tokens for profit.
If the value of P-Tokens exceeds their intrinsic value, one can buy BAYC at a low price, convert it into P-Tokens, and then sell the P-Tokens at a high price to complete the arbitrage.
Regarding lending, PawnFi is more flexible and diverse. DeFi protocols like Compound and AAVE allow all users to deposit tokens for lending or use a bundle of deposited assets as collateral for borrowing. The benefit is that during market volatility, it is less likely to be liquidated. Building on this, PawnFi's NFT lending protocol allows not only ERC20 tokens for lending but also NFTs to be used as collateral. This makes it more diverse compared to traditional DeFi lending protocols and typical NFT lending.
During initial liquidation, as a liquidator, one assists in the liquidation process, helping to repay debts and receiving collateral slightly above the debt value as a reward. In this process, the protocol imposes a 2.8% penalty on the collateral value, which is deposited into the contract treasury. To avoid completely liquidating the borrower's position, we limit the amount that can be liquidated in a single transaction to 50% of the debt.
When a user's collateral is an NFT, it essentially equates to depositing P-Tokens, such as BAYC being held in a smart contract, with the corresponding 1000 P-BAYC deposited into the token pool. During liquidation, the contract liquidates a portion of the P-Tokens to repay the debt. When the remaining P-Token balance stays above a certain penalty value, users can replenish the corresponding P-Tokens at any time. This flexible liquidation method can prevent immediate liquidation of collateral, providing borrowers with more protection compared to other NFT lending protocols.
In summary, PawnFi can solve two problems in the NFT space:
P-Tokens act as a bridge for Web2 users to enter Web3. The reason Web2 users have found it difficult to enter the NFT space has been the high price threshold of blue-chip NFTs, and the indivisibility of a single NFT. However, P-Tokens can solve this problem, allowing users who cannot afford to purchase a complete blue-chip NFT (like BAYC) to hold P-BAYC with a small amount of capital, thus achieving fractional ownership of BAYC and enjoying its appreciation benefits.
PawnFi also serves as a bridge for NFT users to enter DeFi (and for users seeking DeFi yields to enter NFTs), integrating the two crypto ecosystems internally. Users can achieve liquidity conversion in NFT trading, NFT lending, NFT staking, etc., effectively addressing the issue of poor NFT liquidity from a core mechanism perspective.
Investment Institutions
According to public information, PawnFi has completed a $3 million seed round of financing, with investors including DCG, Animoca, Dapper Labs, Polygon, Alliance DAO, and others. According to insiders, PawnFi has recently completed another private round of financing, with participation from Coinbase Ventures and Crypto.com. Additionally, PawnFi has been selected multiple times by CoinList as one of the most promising CoinList Seed projects.
Product Experience
Let's experience the innovative mechanisms of the PawnFi platform through its functionalities.
The specific functions of the platform are as follows:
- Flash Trade
Flash trading feature: Users can swap NFTs and P-Tokens at the market's lowest price.
- Leverage
Leverage feature: Users can deposit NFTs into the NFT Vault and use them as collateral to borrow corresponding P-Tokens short-term.
- Lending
Lending feature: This is a more advanced lending model, similar to Aave or Compound banks. Users can borrow a basket of assets simultaneously, while the P-Tokens corresponding to the collateralized NFTs can also be used across the entire lending market, improving overall capital efficiency and providing borrowers with passive income (P-Tokens).
- Consign
Consignment: Users can consign NFTs and receive a portion of pre-paid P-Tokens. This feature is more suitable for holders of high-rarity NFTs who do not want to sell at floor prices but wish to operate with floor price liquidity.
The NFT-Fi space currently has many experts, with established platforms like ParaSpace and BendDAO having early advantages; the rising star Blur recently launched the Blend feature to enhance platform NFT liquidity; Binance also introduced NFT lending features not long ago, leveraging its brand advantage. Although each has its strengths, none have managed to break free from the limitations of "peer-to-peer" and "pool-to-pool" models, primarily relying on the single method of NFT collateralized lending to release liquidity.
In contrast, PawnFi not only fundamentally addresses the issue of poor NFT liquidity but also offers significantly higher passive income from collateral compared to other platforms. Particularly, the high LTV is extremely attractive to NFT players.
Although PawnFi is still in beta testing, it already shows strong competitiveness compared to these leading platforms. Coupled with the backing of luxurious capital from DCG, Coinbase Ventures, Animoca, and others, it has garnered much market anticipation.
Early Bird Experience Activity
Currently, PawnFi is conducting an early bird experience (Early Access) activity, which is a benefit for early users. The official team has also launched the Mega Drop event, where users can earn upcoming $PAWN token rewards based on loyalty points. According to the announced token application scenarios, it is expected to perform well in the future, and participation in the early bird activity is highly recommended.
PAWN Practical Scenarios
1. Governance: According to PawnFi docs, PAWN can be locked in the PawnFi SAFE contract to obtain corresponding DAO governance rights.
2. Protocol Revenue: The PawnFi team currently stipulates that 50% of the fee income from the Lending module on the platform will be distributed as rewards to PawnFi SAFE liquidity providers. Rewards are distributed proportionally in the form of ETH, USDT, DAI, P-Tokens, etc., and are updated weekly.
3. Enhance Mining Rewards: Locking PAWN in the PawnFi SAFE contract allows users to vote on the token reward pool, increasing the reward distribution ratio. Depending on the locked share and duration, rewards can be increased by up to 2.5 times.
Players who wish to participate can register via email on the official website, join the Discord community to obtain registration invitations, and follow the official Twitter for more information.
In addition to earning points by participating in the beta test, each user who gains early participation eligibility will receive a limited number of invites to share with friends for participation in the early access program, and the inviter will earn an additional 20% reward points from the points earned by the invited users.
