NiftyOptions emerges as the pioneering on-chain NFT options protocol on the Ethereum mainnet, offering a groundbreaking method for users to safeguard their NFT holdings against market fluctuations.
What is NFT option
An option is a contract that grants one party the right, but not the obligation, to conduct a transaction involving a specific asset at a predetermined price on or before a certain date. In simpler terms, NiftyOptions represents a smart contract that maintains an open offer to sell an NFT at a set price for a defined time frame. The seller of the NFT commits to keeping this offer open for a certain duration in return for a fee, known as a premium, from the buyer.
Functionalities of NiftyOptions
Risk Management: Users can create an option for their NFTs to manage downside risk. This ensures that if the NFT's value decreases, the owner can still secure a specific amount of ETH, only forfeiting the premium paid.
Borrowing: NFTs can be used as collateral in certain lending markets like NFTfi. Here, the lender receives assurance on the amount of ETH that will be available in the options contract until its expiration.
Enhanced Selling Potential: In the near future, NFTs not covered by an options contract might be considered less desirable. Buyers might be willing to pay extra for NFTs with an associated option, as it provides a guaranteed price floor.
NFT Options Benefits
- For NFT owners, NiftyOptions offers a strategic advantage, particularly in volatile markets. It ensures that the holder can either retain the NFT or receive a predetermined liquidation price.
- Flexibility and Control. The strike price and the incentive fee in a NiftyOption are set by the option's creator and can vary depending on individual circumstances. The initial creator of the contract retains ownership of the option and can dictate its terms or transfer the option to another party.
Use case example
Consider a scenario where you acquire a valuable NFT at a floor price of 65 ETH. To hedge this investment, you might initiate an Option by placing the NFT in escrow with an added incentive of 1 ETH, setting a strike price of 50 ETH, and a duration of six months.
During this period, any participant can claim the 1 ETH incentive by depositing 50 ETH into the escrow. They will either get their 50 ETH back or acquire the NFT within six months, without choice. As the original creator of the option, you have the ability to either cancel or exercise the option during this time. Cancelling the option would return the NFT and the 50 ETH to their respective owners, whereas exercising the option would transfer the NFT to the fulfiller and the 50 ETH to you. If neither action is taken by the end of the six months, the option can be expired by anyone, resulting in the NFT and 50 ETH being returned to their initial holders, with the fulfiller retaining the 1 ETH incentive.
