TL;DR
FloorDAO leverages NFTx and Olympus DAO to become the decentralized Market Maker in NFT.
FloorDAO is considering to adopt ve-tokenomics & gauge like Curve Finance.
Back to FloorDAO
In previous article about NFT & liquidity issue, I covered FloorDAO briefly. Today, I thought that this is right timing to address FloorDAO in more detail as first token launch of FloorDAO, $aFLOOR has started in 2/22.
How DeFi tried to solve liquidity issue
Before diving into FloorDAO, let’s look back how DeFi tried to solve the liquidity issue.
DeFi 1.0
1st generation DeFi like Uniswap offered high APY to attract liquidity from users. Initially, this strategy seemed to have worked and succeeded to some extent, but over time, several problems emerged.
LP providers started to chase higher APY and moved between different protocols and pools. So, protocols got under pressure to offer higher APY to attract long-term deep liquidity compare to their competitors.
How DeFi protocols were able to promise high APY? The answer is the native tokens. Most of DeFi protocols added their native tokens to protocol fee to offer high APY. However, it lead to hyper inflation of native token, which lead to value dilution.
DeFi 2.0
And then, 2nd generation DeFi, Olympus DAO and its forks appeared. What differentiated Olympus DAO from other DeFi protocols is that protocol started to own liquidity pool by itself. By this mechanism, protocols don’t need to rely on LP providers.
However, DeFi 2.0 still has some problem. Protocol is sustainable if and only if yield made by protocol treasury is higher than native token’s inflation rate. If this assumption is broken, protocol is also broken.
What FloorDAO is trying to do
FloorDAO is identical with Olympus DAO except for:
It’s not DeFi, but NFT.
Goal of Olympus DAO is to make $OHM decentralized reserve currency, but FloorDAO aims to become decentralized Market Maker that can offer stable liquidity to NFT projects.
To understand FloorDAO
To understand FloorDAO, we need to know about NFTx and Olympus DAO first.
NFTx
NFTx is platform which can create NFT-backed token. NFT-backed tokens is tokens that represent certain NFT’s share. NFT holders can deposit their NFT into NFTx vault and mint corresponding ERC-20(vToken). With vToken, holders can redeem the NFT from the vault.
With vToken, NFT holders can do many things which were impossible with just NFT.
You can sell vToken in DEX instantly.
By staking vToken SLP(Sushiswap LP token) or vToken itself, you can earn fee.
Example: AZUKI NFTx vault
Theses are the NFTs that are deposited in AZUKI NFTx vault.
By depositing AZUKI NFT into vault, you can mint $AZUKI and with $AZUKI, you can redeem random NFT in this vault. If you want to redeem specific NFT, you should pay additional 5% premium.
By staking $AZUKI-ETH LP token into NFTx, you can earn both Sushiswap fee and AZUKI NFTx vault fee and you can earn only vault fee by just staking $AZUKI.
Olympus DAO
As I briefly mentioned, Olympus DAO uses POL(Protocol Owned Liquidity) mechanism to solve liquidity issue. Although significant APY looks very attractive, you should keep in mind that $OHM’s inflation rate is also very high.
In Olympus DAO, you can do 3 actions; Bond, Stake, and Sell.
First, Bonding is to mint $OHM at discount price by bonding certain assets to Olympus DAO treasury. Second, by Staking, you can earn high yield by staking it. Lastly, Selling is literally selling $OHM.
How it works
Similar to Olympus DAO, you can Bond and Stake with FloorDAO.
Bonding
You can bond certain assets to FloorDAO treasury and mint $FLOOR at discount price. For now, FloorDAO only accepts $PUNKS, which is Cryptopunks NFTx vault vToken, $PUNKS-ETH LP token, and WETH for bonding.
Staking
If user stake $FLOOR, $FLOOR transforms into $sFLOOR and every 8 hours, it gets rebased. What’s important it to keep rebase yield appropriate because too low yield would not attractive enough for users and too high yield would break the protocol because of hyper inflation.
How to make profit
For FloorDAO to be sustainable, FloorDAO must use the assets collected by Bonding to yield a higher return than the inflation rate of $FLOOR. FloorDAO's plan to satisfy this is as follows.
Accumulate vToken and vToken LP by Bonding.
Deploy this assets to NFTx by staking or as LP.
Trades would check the high vToken price and buy the floor price NFTs to do arbitrage exchange.
The reason why arbitrage exchange works is because when vToken price is high, After buying floor price NFT, I can deposit it into NFTx vault and mint vToken and sell it in DEX to make money without any risk.
Make profit from vToken swap and NFTx vault fees.
Although only $PUNKS is available, FloorDAO will add more NFT projects in near future.
Future of FloorDAO
Through this medium post, FloorDAO proposed some mechanism that may integrated in FloorDAO in future.
ve-tokenomics
ve-tokenomics is mechanism which we lock the token and voting power is given proportion to the amount of locked token and locked period. By applying this mechanism to FloorDAO, as many people lock their $FLOOR, the total circulation decreases and long-term investing becomes incentivized.
gauge
With ve-tokenomics, gauge can be integrated to FloorDAO. Through voting power given proportional to lock-up period, $veFLOOR holders can vote on certain agendas like:
Which NFT projects will we add to Bonding asset of FloorDAO?
How much will be $FLOOR minting price of certain NFT Bonding?
If FloorDAO achieves some degree of success,many NFT projects would want to get their NFTs to be added as FloorDAO Bonding asset to get stable liquidity. In this case, governance power may becomes significantly important which can be lead to something like Floor Wars.
meta-governance
If lots of NFT projects’ vTokens are added to FloorDAO treasury, $FLOOR would work as a meta governance token which can affect governance of multiple NFT projects. It will increase the demand of $FLOOR.
Thoughts
Optimistic
If FloorDAO succeeds to offer stable decentralized liquidity to certain NFT projects, similar to the Curve Finance, many NFT projects would compete to accumulate $FLOOR, which would lead to more Bonding and increase of $FLOOR price.
Pessimistic
Because FloorDAO uses the same mechanism of Olympus DAO, these two shares the same weak points. First, if they yield is not high enough, FloorDAO must lower the inflation rate of $FLOOR and it will fail to attract more users. Second, since the mechanism of Olympus DAO is greatly affected by macro market conditions, if the NFT market itself slows down, there is a high probability that FloorDAO will also suffer a lot of damage.