Abacus is using free market principles to build financial infrastructure for NFTs on the Ethereum blockchain starting in 2021.
Acting as a lender or borrower, Abacus allows users to value NFTs by strategically placing liquidity in different price bands, enabling them to generate yield and acquire exposure to NFTs. Borrowers are offered favorable terms such as low interest rate, high LTV and convenient liquidation terms.
Direct lending protocol
Abacus.wtf offers a liquidity-based valuation mechanism for NFTs. The owner of an NFT places it on Abacus in search of liquidity support, and appraisers provide it based on their opinion of how much the NFT will sell for at auction. In the process, they essentially crowdsource the correct valuation of the NFT.
Positions are fully liquid (and gas-free valuation offers are available), so as long as no one is borrowing against the pool your position is in, you can remove it without exit tax. Otherwise, you are making money.
The appraiser incentive is made up directly from the interest paid by the borrowers, a 1% closing fee, any auction premium for closing, and a >4% liquidation fee.
At Abacus, you can
- Create a pool
- Appraise in the pool
- Borrow from the pool
- Sell to a pool
Create NFT pool
Anyone can create a pool for any NFT basket. The pool creator determines 8 factors that apply throughout the life of the pool:
- Linked NFTs: All NFTs that are connected to the pool, which means they have the ability to sell liquidity into the pool or borrow pool liquidity.
- The interest rate paid by someone who wants to borrow liquidity from the pool.
- Collateral Slots: The maximum number of NFTs (of linked NFTs) that can be borrowed or sold to the pool at one time.
- Tranche Size: The valuation step that each tranche represents.
- Epoch Length: The pool is broken down into time periods called epochs to distribute the interest earned. Therefore, the epoch length determines the length of these time segments.
- Token: A token that denotes the value of the pool.
- Risk Base: Sets a minimum reward per risk point to reduce the sharpness of movement in the risk-reward tradeoff for higher tranches. A lower risk base results in a higher return differential between tranches.
- Risk Step: The movement of the risk reward differential is based on the risk step.
Appraise in a pool
Opening an appraisal position
Potential appraisers can buy tranches that match their estimate of the NFTs associated with the pool. For example, if Alice wants to appraise in a pool with 100 Punks, she should make sure that the tranche(s) she decides to put liquidity into matches her estimate of the Punk with the lowest cost in the pool!
Appraisers will also be able to submit appraisal bids that don't cost gas and don't require a capital lock-in until the deal is finalized!
Closing an appraiser position
Appraisers can't be locked into a pool if they are not making money (that is, if no one is using it). For example, if Alice enters the pool, sets a lockout time of two weeks, and no owner wants to borrow from her pool, she can remove the liquidity from the pool without penalty. However, if Alice enters the pool, sets the lock time to two epochs, and owner Punk comes to borrow estimated liquidity from the pool, Alice will be locked out until either the loan is repaid or two weeks have passed.
Sale to Pool
The owner of an NFT can sell his NFT to the Spot pool for the appraised value of the NFT. So, if an NFT is valued at 50 ETH (meaning that the pool has liquidity worth 50 ETH), the owner of that NFT can sell it to the pool for 50 ETH.
Closure Auction
Once sold to the pool, the NFT is automatically put into an auction, which starts after the first bid is submitted. If the NFT is sold for more than the appraised value, the appraisers split the premium and the payout amount is returned to the pool.
If it sells for less, pool participants are either reduced or refunded a portion of the principal amount used for the closing payout. In this case, the maximum number of security slots is reduced by 1 until all existing valuation positions have expired. Upon expiration, any participant may reinstate the pool, which will replenish the number of collateral positions the pool can maintain.
Borrowing from a pool
If you own an NFT that is linked to a Spot pool with liquidity in it, you can borrow liquidity from the pool.
The number of NFTs that can be borrowed against a pool at one time is determined by the amount of collateral slots that the pool has been created against. The LTV of the loan is 95% of the value of the pool. The interest rate payable corresponds to the interest rate of the pool against which the loan is made. The term of the loan lasts as long as there is enough liquidity left in the pool. For example, if Alice, Bob, and Charlie have collectively blocked assessments that value a punk at 60 ETH (meaning that they have collectively contributed 60 ETH to tranches of assessments), and they are all locked for two weeks, Pepe can borrow 57 ETH against his punk for at least two weeks if he wants to.
Liquidations
Liquidation is entirely time-dependent. This means that as long as the borrower pays the borrowed amount on time, liquidation does not occur.
