The peer-to-protocol lending model of JPEG’d will allow NFT holders to obtain liquidity using their NFT capital as collateral.
There is no denying how the NFT market has soared in value over the past years, prompting on-chain NFT-focused lending services to sprout left and right. However, typical NFT lending platforms use a peer-to-peer approach.
With JPEG’d, users will be introduced to a token-integrated peer-to-protocol approach, thereby increasing the speed at the cost of customizability.
What Is JPEG’d?
In the last year alone, NFTs effectively climbed from zero to $17 billion in market capitalization. Holders of on-chain generative art like Bored Ape Yacht Club, CryptoPunks, and many others have probably noticed how their collections gained valuations that would have otherwise been impossible a few years back.
Nevertheless, NFT investors mostly earn from their collections by flipping their pieces—buying them for low prices and selling them for high prices. While some investors may be content with flipping, others might be on the lookout for alternative liquidity routes. In such a situation, the ingenuity of JPEG’d come in handy.
According to a tweet from Twitter user Kel, JPEG’d will “launch a new peer-to-protocol lending primitive” that could give investors access to liquidity while keeping their NFTs.
Yes, there are already protocols in place aimed at increasing NFT liquidity. However, the peer-to-protocol approach of JPEG’d might take NFT lending to greater heights. Kel said, “The speed it brings could unlock the NFT lending market.”
The JPEG’d Protocol Design
Based on the protocol design of JPEG’d, borrowers would be able to make “non-fungible debt positions” NFDPs) by depositing their collateral to mint a synthetic stablecoin, in this case, the PUSd. Here’s an example:
A CryptoPunk NFT holder would deposit his NFT into a smart contract and eventually be able to mint PUSd. It would effectively provide him liquidity on his NFT and earn yield in DeFi. As a result, his CryptoPunk NFT transforms from a static investment to a yield-earning product.
Instead of using a counterparty to underwrite loans, underwriting loans through this peer-to-protocol scheme will be done automatically based on a configurable set of parameters. These parameters include collection type, maximum loan-to-value (LTV) ratio, interest rates, etc.
Even holders of whitelisted NFT collections can take a loan against their pieces. They can automatically borrow up to 32% of their collateral value in PUSd stablecoins. However, if the LTV ratio goes beyond said percentage, holders’ collateral would be at risk of liquidation.
A governance token, JPEG, will be used to manage the protocol; thus, the name JPEG’d. The token will oversee, administer, and change parameters deemed necessary to the protocol.
The token distribution under this protocol will be split among four parties—the team, the DAO, the advisors, and the public. The advisors, also known as the “Chad Council,” include a unique mix of pseudonymous and known angel investors like DCInvestor, DeFiGod, Santiago Santos, Tetranode, The LAO, and others.
A “Token Donation Event” was held to distribute the tokens to the public. The event raised over $70 million in funding. About 35% of the total JPEG supply was earmarked for donors in this event.
Headwinds and Tailwinds
The protocol design is susceptible to certain headwinds and tailwinds in any business undertaking. Among the headwinds are declining liquidity across markets and large team allocation. Tailwinds for the protocol include faster UX, an open market vertical, and an experienced, well-capitalized team.
We will continue to provide more details regarding collateralization limits, oracles, and liquidations in future articles.
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