Fragmentation of NFT born to improve the liquidity of NFT
- The main problem that NFT fragmentation is trying to solve is the low liquidity. And the results show that Fractional.art is actually not good at improving liquidity for the sake of improving liquidity. Unic.ly and NFTX, which give new value to fragmented Token, have really improved liquidity.
- The highest transaction price which is constantly refreshed carries the individual's expected valuation of the NFT, while the floor price carries the majority consensus.
- Only NFT collectibles like CryptoPunks, where there is a consensus of most NFT collectors, can retain their value over time. Most NFT collectibles in the market cannot build consensus and will quickly become worthless when the market takes a hit.
Fractional is a pure NFT fragmentation protocol built on Ethereum. NFT holders can lock one or more NFTs into the smart contract to create fragmented fungible ERC-20 tokens. The total supply and the symbol of tokens are set by creators. In addition, creators also have to set the reserve price and buyout price of the locked NFTs for other NFT collectors to bid on.
The creator is required to form a liquidity pool of fragmented ERC-20 tokens with ETH, for other purchasers to trade on 3rd party Automated Market Maker (AMM) platforms, such as SushiSwap and UniSwap.
Fragmentations on Fractional are dominated by single NFTs. Most of them show high TVL and transaction volume when they were just released, decrease sharply as popularity declines.
Unic.ly introduces Automated Market Maker (AMM) and Liquidity Farming on top of the NFT fragmentation. The mainnet went live on April 7, 2021.
NFT holders can create uTokens by storing and locking their ERC-721/ERC-1155 based NFTs in the smart contract. uToken is ERC-20 based token, the total supply is set by the creator. One uToken may contain one or more NFT collections.
Purchasers can acquire partial ownership of an NFT collection (depending on the number of uTokens held) by purchasing a uToken. NFT collectors can bid on individual NFT in the collection, then uToken holders could vote on whether to accept the highest bid. When a certain percentage of votes are cast in favor of accepting the highest bid (a percentage set by the creator when creating the uToken), the NFT will be unlocked for the highest bidder to claim, and the uToken holders will receive a proportional share of the NFT sales.
uToken is essentially a governance token that gives holders voting rights and a share of the proceeds. In order to gain more revenue, the model encourages uToken holders to actively participate in voting when the bids for the NFT collection reach the expected valuation. Also incentivizes uToken holders to promote the collection so that the NFTs have chances to get higher bids.
UnicSwap is Unic.ly's AMM trading platform for uTokens, it's a folk of UnicSwap v2. uToken creators need to add trading pairs and liquidity to uToken to meet trading needs. Adding new trading pairs requires a request to the Unic.ly community and a community governance vote before it can be issued.
Just like UniSwap v2, liquidity providers will get ERC-20 standard LP credentials and transaction fee rewards. By staking LP credentials, LP can do liquidity mining and get $UNIC reward. 0.3% transaction fee for UnicSwap, 0.25% of which is used to reward LP, and 0.05% is used for the platform to repurchase $UNIC tokens periodically.
Source: Unic.ly / TVL stablized at about $53 million from June, with an average trading volume of $0.5 million.
Compared to Fractional, liquidity mining rewards kept mainstream uToken liquidity enough, although the trading volume is not high during the downturn.
In addition, Unic.ly has the advantage that NFT collection creators can add new NFTs to the collection at any time, which makes it convenience for for-profit NFT DAOs to buy and add new NFTs in time after old NFTs sold. That's why Jenny DAO chose Unic.ly.
Unic.ly has partnered with Polygon and plans to go live on Layer-2 in Q3 this year.
NFTX, while not exactly an NFT fragmentation project, also wants to address the low mobility of NFT. The project has gone live on Ethereum main network in January 2021.
Depending on the type of collectibles, NFTs are divided into different vaults. Anyone can store and lock the NFTs belonging to certain collectible categories into the smart contract, and then get a vToken of the corresponding vault on a 1:1 basis. vToken holders can pay 1 vToken to redeem a random NFT in the corresponding vault of collectibles, or buy a specified NFT in the corresponding vault of collectibles by paying 1.05 vToken.
Source: NFTX / For example：Users can lock 1 CryptoPunk into the smart contract to get 1 $PUNK
vToken is fungible token based on ERC-20 standard. vToken initial issuance requires adding trading pairs and liquidity on NFTX built-in SushiSwap AMM.
Since vToken is divided by collectible NFTs, we can easily find that vToken of OG NFT projects such as CryptoPunks and AutoGlyph perform better. vToken of CryptoPunks and AutoGlyph exceeded $20 million and $10 million respectively in TVL. And $PUNK peaked at $7.3 million in daily trading volume. Other vTokens didn't perform as well as $PUNK and $GLYPH, but their TVL and trading volume have improved over the past month.
NFTX's model makes NFT holders willing to place less rare NFTs into the vaults for opportunities to exchange for other NFTs with higher rarity. In the end, collectible NFTs with the lowest rarity and price will be left in the vaults. Through its 1:1 vToken exchange ratio, the market can eventually get a relatively fair floor price of the collectible NFTs, which is theoretically more informative than even the lowest price on sale at OpenSea. With sufficient liquidity and a deep enough pool of collectibles, vToken can function as a floor price index for NFT collectibles.
Write at the end
As mentioned in the introduction, financing is one small step for Fractional, a giant leap for the whole NFT market. Driving the NFT market is not just about hot new IPs, but also about infrastructure that fundamentally solves the real problems. We have already seen how NFTs are being used as collateral for lending, and there will be more and more sophisticated instruments coming in the future. Alex Gausman, founder of NFTX, told DeFi Media The Defiant:"In just the last few weeks we’ve had like three or four derivatives projects reach out about using our price feeds." Unic.ly, on the other hand, is working on the fragmentation and merger of Financial NFTs such as UniSwap v3 LP NFT. "Every Defi protocol is looking into NFTs and how to incorporate them," Ben Lakoff, co-founder of the NFT bundling application, Charged Particles said. For NFT world, fragmentation is just the beginning.
TokenInsight Crypto NFT Industry Report 2021 Q2&Jul