🏦 PINC Liquidity (SOON)
A subDAO that provides liquidity and shares the revenue with the holders.
PINC Liquidity Background
To grow the war chest of the Genesis DAO, we have started providing liquid for NFT loans. With small funding, the Genesis DAO wallet has grown by 80+ SOL, within 3 months. Because the results were above expectations, we decided to set up a specific DAO for this: PINC Liquidity. After the launch of PINC Liquidity, we will start by providing liquid for NFT loans. When PINC Liquidity and the market are ready we will use other liquidity-providing options like AMM pools. We will always search for the lowest risk and highest interest options.
How does NFT Lending work?
Borrowers can lend crypto from PINC Liquidity and will provide their NFT as collateral. After the loan period, they can either pay the loan back with interest or default the NFT. When the NFT gets defaulted PINC Liquidity can decide to keep the NFT and sell it.
Types of NFT lending
Peer-to-Peer NFT Lending
One of the more flexible NFT lending methods is peer-to-peer lending. It resembles an over-the-counter transaction where the lender and borrower conduct their business directly.
The borrower lists their asset as collateral, which in this case is the NFT owner. Lenders who are interested in a loan submit offers with the desired interest rate and repayment schedule. The offer can then be accepted by the borrower, who will then be paid and the transaction will be completed automatically.
The NFT is immediately transferred to a digital vault after a trade closes and kept there until the loan conditions expire. The NFT is returned to the borrower's wallet when the loan is repaid, but the lender keeps the interest. But if the borrower doesn't pay, the lender has two options: they can renegotiate the terms with the borrower or get paid using the underlying NFT.
Peer-to-Pool NFT Lending
In comparison to peer-to-peer NFT lending, peer-to-pool NFT lending is a more complicated transaction that offers borrowers less freedom. It does, however, provide more speed and liquidity.
Users can borrow money directly from a liquidity pool thanks to peer-to-pool lending, which eliminates the need to look for a suitable lender. By registering their assets as collateral, borrowers can immediately access funds from the pool of liquidity providers by making direct deposits into it.
Owners of NFTs enter a piece of property into the system's smart contract as collateral. In exchange, they receive a loan, typically in the form of a percentage of the value of the NFTs, with an interest rate that fluctuates over time depending on how the pool is used.
As part of this lending protocol, borrowers deposit the collateralized NFT into the smart contract and then borrow money from the pool at an interest rate determined by the smart contract.
When NFTs that were pledged as collateral lose value and the loan falls below the minimum collateral ratio, commonly referred to as the liquidation threshold, the NFTs are liquidated. The state of your funds is safer against a liquidation scenario the higher the MCR value.
Proof of concept
PINC has always been in favor of demonstrating proof of concepts before making expectations statements to others. To get an extra proof of concept where we can fully focus on providing liquidity we started a small Liquidity Shares Pool with PINC investors. This project serves as an additional proof of concept for the launch of PINC Liquidity.
Results Liquidity Shares Project
Revenue projections
Although we are very careful about creating expectations about revenue, we can share our targets. The loans we provide have an APY of 120-360%. With PINC Liquidity we focus on achieving 150%-200%. This means we aim to double the mint funds within one year, after reinvesting.
It is difficult to make concrete projections about the exact revenue to be achieved. Much depends on the term that loans are repaid. Borrowers often pay back earlier than the initial loan period, which allows us to reinvest faster and gain more interest. It also depends on the defaulted NFTs. Which can be sold for profit or loss.
Advantages of providing liquidity
Advantages for lenders
Lenders are almost always in a win-win position when they offer SOL for lending. Lenders will get interest rates with high APY when they lend or if the borrower fails to repay the loan, the Lender will become the owner of NFT.
Advantages for borrowers
The ease with which an asset can be bought and sold on the market is known as liquidity. A cryptocurrency is said to be highly liquid if it is simple to purchase and sell it, even in huge quantities, quickly, and at a price that is near to the current market price.
Especially blue-chip tokens like bitcoin (BTC) and ether (ETH), which constantly experience high demand and significant trading volumes, NFTs tend to be less liquid than some fungible digital assets. By loaning out assets rather than waiting for a buyer to express interest in their NFT, NFT lending can offer NFT owners a quicker way to obtain fiat or cryptocurrency liquidity.
One essential element of managing financial risks is having a diversified portfolio. Owners of NFT spread their investments among a range of assets when they temporarily exchange their tokens for other cryptocurrencies or money. As long as loan deadlines are properly controlled, NFT lending may complement a strong risk management approach.
Risks involved with PINC Liquidity
PINC Liquidity's growth is slow and the goal is always to make more profits than losses in the longer term. It is good for investors to be aware of the risks of this subDAO.
When managing the risks associated with NFT lending, several key factors must be considered. These include the potential for changes in asset prices, market liquidity, protocol mechanics, and the ability to liquidate positions.
Market risk
Market risk is the possibility of fluctuations in the value of assets used as security or as a means of repaying a loan, as well as the possibility of a lack of market liquidity. The possibility of modifications to the protocol's structure or other elements could have an impact on the viability of current loans as well as the capacity to make new ones.
Valuation: NFTs' distinctive characteristics make it difficult to precisely estimate their worth, which can lead to ambiguity and make risk management difficult. The industry standard is to calculate an NFT's worst-case value based on the "floor price" of the collection to which it belongs.
Volatility: The possibility of abrupt price shocks that could leave loan positions with insufficient collateralizes NFT lending. We must take into account each asset's (collection's) volatility depending on its floor price and incorporate this into our price path generation engine to account for this risk.
Liquidity: Rapid price changes are frequently associated with market liquidity. Consequently, a crucial factor to take into account is the sales volume for each collection of NFTs. We will define and track the slippage effect on NFTs in our simulations as the shift in price the market experiences in reaction to an unexpected rise in the number of NFTs listed on the secondary market.
Potential Rug pull: Just like buying an NFT, the danger in NFT lending is also in the potential rug pulls. Let's suppose you lend out 50 SOL for two DuelBots and the collection performs a rug pull. The problem is that you can't terminate your loan to sell the NFTs on time. There is a good chance that the NFT loan will be underwater.
Protocol risk
The possibility of modifications to the protocol's structure or other elements could have an impact on the viability of current loans as well as the capacity to make new ones.
The loan's loan-to-value (LTV) ratio typically determines the overall amount of debt issued per asset. The maximum LTV determines how much money can be borrowed against a specific asset. Although a greater LTV can help borrowers use their resources more effectively, it also raises the chance of default.
The specifics of each loan, including the grace period and safety cushion. When a borrower's debt reaches a specific threshold, they are offered a grace period during which they have time to pay it off (for example, the expiration of a flip loan or the breach of a liquidation threshold for a perpetual loan). The margin of safety is a criterion that is used to assess the health of the loan and can also be used to establish the liquidation bonus and threshold.
Platforms risks
Although the risk is reduced by automated smart contracts and transparent conditions, there is still some risk involved because defaulting on terms might result in the loss of your NFT. On the majority of NFT lending platforms, the NFT securing a loan is sold at auction when it goes into default or expires without being repaid.
Furthermore, many NFT lending platforms only permit a tiny fraction of collections to be used as collateral, many of which are comparable. This creates a concentration risk. When several loans are repaid, parts of that subset will face a disproportionate burden and lose value. This could be detrimental to other borrowers using that NFT as collateral as well as lenders who might have trouble recouping their whole loan amount when attempting to sell the NFT, which is now highly illiquid.
For PINC Liquidity, at first, we will be mainly using the Sharky.fi platform. Sharky connects NFT holders and liquidity providers directly via a permissionless smart contract infrastructure. The Sharky team, at no point, has access to any asset or is involved in any way in the negotiation of terms between Lenders and Borrowers.
At the moment, this collection has only invested in the Solana blockchain. In the longer term, PINC intends to invest in other blockchains to create better diversity in the PINC ecosystem.
Other Liquidity providing options
When PINC Liquidity and the market are ready we will use other liquidity-providing options like AMM (Automated Market Maker) pools. We will always search for the lowest risk and highest interest options.
AMM Pools
Instead of relying on traditional buyers and sellers in a financial market, AMMs keep the DeFi ecosystem liquid 24/7 via liquidity pools.
You can construct liquidity pools on AMM marketplaces using pairings of your preferred NFT and the marketplace's supporting token (for example, a DeGods/SOL pool or an Azuki/ETH pool). The benefit of having an AMM option is that you can set your price right away rather than having to wait for someone to eventually accept it. You can instantly sell your NFTs and profit from trading commissions from your pool.
You won't be able to select the price you want for your NFTs with AMMs; instead, an algorithm known as the "bonding curve" will do this and charge for them based on the supply they currently have (against demand).
This means that occasionally the algorithm may set prices for your NFTs below the floor, preventing you from recovering your initial investment in full.
Impermanent loss risk
The value difference over time between placing tokens in an AMM and just keeping them in a wallet is known as impermanent loss. When the market price of tokens inside an AMM diverges in any way, this loss happens. Since AMMs don't automatically modify their exchange rates, an arbitrageur must acquire assets that are being offered at lower prices or sell those that are being offered at higher prices until the prices supplied by the AMM match the market-wide price of external marketplaces.
Lending tools
To get the lowest risk possible we will only provide loans with a low LTF (Loan to floor/ difference between the floor of the NFT and the loan). The loans have preferably an LTF of 30-60% and a duration of 7-14 days. These strategies help us, in case an NFT gets defaulted, to sell it with profit. We also use a specialized tool called: Lender Labs, to help us to find the best loans available and to maintain these lending strategies.
PINC Liquidity Tokenomics
Supply: 5000*
Public mint price: 3 SOL
Mint date: 28 April 2023
*100 NFTs reserved for Genesis Holders (airdrop TBA) *250 NFTs reserved for team and marketing purposes (50 unlocked for every 1000 mints). * In case our collection will not mint out, we will pause the mint and continue providing liquidity. The PINC Liquidity collection does not need to mint out to get the aimed results for its holders.
Mint Funds Distribution
75% reserved for DAO community wallet investments
15% reserved for the team
10% reserved for project funding
Revenue Distribution
90% revenue to holders, paid out monthly*
5% to Genesis Holders
5% to the team
*The community can vote if they want to reinvest the earnings to compound their passive income or to pay out themselves. Payouts will be airdropped on monthly basis.
Royalties Distribution
25% to Genesis Holders
50% to the team
20% to marketing and DAO community wallet
5% to charity*
*The Genesis holders decide to what charity the funds should go to and will be distributed at the end of every year.
Last updated
