Unicly is a permissionless, community-governed protocol to combine, fractionalize, and trade NFTs. The protocol incentivizes NFT liquidity and brings AMMs and yield farming into the world of NFTs.
Why fractionalize
Fractionalization allows more people to trade NFTs at lower prices, allowing more people to own even the most desirable NFTs. It even allows casual investors to buy small amounts in NFT projects they like as if they were liquid tokens.
Traders and casual investors will get more liquidity under the familiar AMM model. At the same time, yield farmers will have an incentive to be rewarded by providing liquidity.
Anyone with NFTs can create their own factions. At its core, a fraction is an ERC-20 token that represents a collection or bundle of NFTs. It allows users to deposit and lock any number of ERC-721 and/or ERC-1155 NFTs into a smart contract.
NFT fractionalization problems
The main problems of previous fractionalization solutions:
- Sharding of individual NFTs instead of collections. The market value of a single NFT has a ceiling. However, by fractionalizing any collection of NFTs into multiple smart contracts, we can create fractionalized tokens based on pools of NFTs that will have significantly higher value.
- Un-Fractionalization. Fractionalizing NFTs is only one part of the solution. An example of a previous solution is the introduction of a carry clause where people can offer to buy back NFTs. The problem with this model is that if shard holders do not have enough money to counter-offer, they are forced to sell to the highest bidder.Another example is the random distribution of NFTs among shard holders. However, given that each NFT is unique, and even a difference in mint number can add or take away a digit to the NFT valuation, the random allocation may not be perfect.
How works Unicly v2
The Unicly protocol improves on the aforementioned problems through the following key attributes:
- Multiple NFTs (ERC-721 and/or ERC-1155) can be placed in vaults and fractionalized into fungible ERC-20 tokens.
- NFTs in vaults can be fractionalized individually. This happens when someone bids above a “trigger price” that is set by the vault creator. When the trigger price is set, the auction begins.
- Each NFT in a sharded collection is treated as a unique, irreplaceable item.
- Collectors may auction specific NFTs, not entire collections.
- All fractions are treated the same.
- When an NFT is auctioned, the proceeds (in ETH) are returned to the vault. Owners of fractions are entitled to a pro-rata share of these proceeds.
- Fractions can be burned, and holders can leave the game at any time with their share of ETH in the vault. No one can be held hostage,
- Contributors of the best NFT collections are rewarded with whitelists, allowing them to earn a UNIC token as a reward.
- Unsold/unused NFTs for new launches can be added to the vault, and fractions can be given to all holders (or stored in the treasury) for future use.
- Unicly V2 can be used as a backend technology for many NFT protocols (especially lending/borrowing).
The vault creator starts with all fractions when first creating the vault. He can add more NFTs at any time, and customize the vault so that others can add any or specific NFTs.
Once the creator of a faction adds liquidity for it, anyone is allowed to trade it, similar to how tokens are distributed after liquidity is provided on Uniswap. Adding liquidity is not mandatory.
Vault creators set the auction trigger price for each NFT in their vault. As soon as someone bids the trigger price, the auction for that NFT will start.
Fraction holders can claim their portion of the proceeds from NFT sales at any time. Once they redeem, fractions are burned, and they are no longer entitled to claim ETH from any future sales from the vault. This incentivizes holders of fractions to not burn them:
- The market value of fractions on DEX trades below the vault's ETH holdings, making it an easy arbitrage opportunity.
- They believe that the NFTs left in the vault have no value.
Thus, fractional ownership gives users a direct economic benefit from the NFTs in the vault as if they owned the NFTs themselves. However, they don't give ownership of the NFTs themselves. Owning fractions does not mean that you will be able to redeem NFTs - for that you will have to bid directly on them.
Vault creators can authorize transactions by proxy. This means that faction holders can vote to conduct transactions from a vault address. This allows:
- A vault address can claim air drops that are issued by the NFT to the vault.
- Vaults can have individual, flexible management with faction holders, allowing for more sophisticated DAO treasury management. For example, faction holders can vote to withdraw a portion of ETH
UnicSwap is a fork of UniswapV2. Therefore, it uses ERC-20 LP (liquidity provider) tokens that can be pledged directly to UnicFarm for farming.
0.25% of the total trading volume on UnicSwap is taken as a fee and distributed to the liquidity providers for swap pair. A further 0.05% of the total trading volume on UnicSwap is taken as a fee and added to the treasury.
Сomparative analysis of NFT fractionalization protocols will show you other approaches
