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In essence, financial NFTs have the attributes of bills. The introduction of a suitable bill-type asset agreement may solve the current contradiction between financial NFTs and liquidity losses.
Written by: Ethean
Since the beginning of this year, after one after another NFT storm in the fields of art collections, games, domain names, etc., people have begun to realize that NFT, that is, non-homogeneous tokens are essentially unique and non-replicable forms of encrypted tokens. Not just synonymous with encrypted collectibles. DeFi is one of the most innovative fields in the crypto world, and more and more teams are trying to introduce financial NFT into the protocol, hoping that NFT as a new form of assets will bring a broader imagination to DeFi.
In the early morning of March 24, Uniswap officially released the detailed information of the V3 version. The most concerned change in this version is the conversion of the liquidity provider (LP) market-making certificate Token from the homogenized ERC-20 to NFT , The popularity of the concept of financial NFT has thus been pushed to a phased peak. The LP Token in the form of NFT in the V3 version gives LP the ability to manage funds more refined: LP can choose to concentrate funds in a certain price range to make the market. This innovative AMM market-making model suddenly attracted the attention of the entire crypto community. However, in stark contrast to the high attention of the market, UNI fell sharply after the news was released. According to Binance data, UNI fell from US$36.8 to a minimum of US$29, a single-day drop of up to 10%. Although the token price is affected by many complicated factors, we still have reason to speculate that at least Uniswap V3 did not make the crypto market very amazing.
Why did the leading financial NFT of DEX have a cold start? The following will start from the first principles of DeFi and explore the key to the problem.
The conflict between financial NFT and DeFi first principles
DeFi has been on fire since last year, and the industry has set off a wave of various mining crazes, and now it is ushered in a round of NFT mania, everyone seems to be hit by the hotspots and lost their way. This article hopes to lead everyone to focus on the original intention of DeFi and make a calm judgment on the current industry development. Let us review the development of DeFi over the past year, and re-examine what DeFi is and what are the first principles of DeFi?
All financial systems are essentially a liquidity provision mechanism, and DeFi is an open, transparent, accurate and efficient liquidity provision mechanism based on blockchain and encryption algorithms. Whether it is traditional finance or DeFi, liquidity is its first priority. With the development of the DeFi industry, DeFi products are evolving to higher-level financial products, providing users with more flexible maturity, risk and return options, but the realization of these high-level functions should not be sacrificed at the expense of liquidity. NFT is an encrypted asset token with multi-dimensional attributes, which can be used as a carrier of high-end financial products. However, in the existing DeFi market, we have found that financial NFT and DeFi’s first principles of liquidity conflict.
Financial NFT lacks a suitable asset agreement
Compared with the current popular homogenized tokens, NFT is a non-homogeneous asset with richer characteristics, which can describe the richer characteristics of financial assets and greatly increase the design space of DeFi products. For example, we can save Borrowing plus maturity to realize regular loan business, and risk clauses for derivatives to realize risk management and control. Uniswap V3 is to realize centralized liquidity market making for LP Token plus price range. When developers actually implement these financial NFT products, they will encounter a question: Which asset agreement is used to implement financial NFT?
What is an asset agreement? Simply understand that all assets on Ethereum need to be packaged in an asset agreement to be able to circulate on the chain. The mainstream asset agreements now include ERC-20, ERC-721 and ERC-1155. ERC-20 is used to package homogenized tokens, such as ETH, Dai, etc., and is the most widely used asset protocol. However, ERC-20 cannot describe the various attributes of assets. For example, the popular Cryptokitties (a product in a crypto game) in 2017. In order to allow crypto kits to circulate on the chain, the CTO of the game company proposed ERC-721. All encrypted artworks are implemented based on ERC-721. However, the ERC-721 protocol specially created for CryptoKitties has many shortcomings in other application scenarios. For example, an ERC-721 protocol can only be loaded with one asset. In 2018, the CTO of ENJIN (an encrypted game company) proposed the ERC-1155 protocol. ERC-1155 is an upgrade to ERC-721. Its biggest feature is that a single ERC-1155 protocol can incorporate multiple NFT assets. Each game item is loaded into a protocol.
When developing a financial NFT, we need to choose an asset agreement. Based on the characteristics of financial products, we hope that the asset agreement can meet the liquidity requirements of financial assets as much as possible. How to understand liquidity? The finer things are easier to flow, the larger pieces of gold are divided into small pieces like quicksand, and they can flow freely everywhere. Based on the above analysis, the requirements for the financial NFT asset agreement are very clear: support for multi-dimensional asset description attributes and support for splitting.
ERC-20 was first ruled out due to the lack of descriptive ability. ERC-721 cannot be divided. If it is used to realize financial NFT, it must be equal to the sacrifice of liquidity. Although ERC-1155 can incorporate multiple NFT assets at once, It is also impossible to divide a certain NFT in the agreement. None of the existing mainstream asset agreements can be adapted to financial NFTs. Putting financial NFTs into these asset agreements is like forcibly squeezing into unfit shoes. It is also expected that financial NFTs will not be able to exert their due effects.
What asset has both multi-dimensional attributes and can be divided. At first thought, you might feel that this is impossible at all. For example, how can the crypto cat be divided? But in fact, in the real world, each of us often deals with such assets, which are bills. The series of legal terms and implementation methods behind the bills are highly unified, and the difference between each bill is the difference in some specific parameters. The bill is a typical asset that has both multi-dimensional attributes and can be divided.
Picture: Electronic Bank Acceptance Draft
In the real world, the “bills” referred to by general financial institutions are still in a narrow sense. They only include commercial papers issued by banks and enterprises, promissory notes, money orders, checks, etc. However, if the concept of bills is defined in a broader sense, bills are actually a special standardized contract. Some financial instruments that are not traditionally called bills, such as forward contracts, futures, swaps, options, bonds, ABS, etc., as well as some atypical financial equity certificates, such as house deeds, land deeds, tickets, ownership certificates, qualification certificates, etc. And so on, can be understood as a form of bills.
All financial NFTs that we can think of have bill attributes in nature. The key to solving the current contradiction between DeFi financial NFTs and liquidity losses is to introduce a suitable bill-type asset agreement.
Bill-type asset agreement is the key to solving the problem
Going back to the example of Uniswap V3, the LP Tokens in Uniswap V3 are all NFTs. If ERC-721 is used for implementation, then the LP Tokens obtained by users in a pool cannot be used in two or more other protocols at the same time. . To understand the specific scenarios, if the two existing platforms provide V3 LP pledge, users hope to pledge 50% of their assets on these two platforms. This is very simple and easy in the ERC-20 era, but now it is because of ERC. -721 Cannot be split and cannot be realized.
The rules for casting, circulation, and use of each LP Token are highly consistent. The difference lies in the price range corresponding to the underlying assets. The LP Token in the form of NFT is a typical token with bill attributes, but there is no such thing in the market now. The adapted bill-based asset agreement.
Figure: The corresponding technologies of the five asset expression forms of “What is a digital asset” in the blockchain
The Solv team began to invest in digital asset research last year, and we found that the current entire digital asset lacks an important category: bill token (hereinafter referred to as ticket). We also encountered the above-mentioned problems during product development, and the demand for ticket agreement became more and more prominent, so we proposed a brand new asset agreement-vNFT. vNFT is an asset agreement designed specifically for tickets, which can describe multiple attributes of assets and supports split, merger and partial transfer. In addition, in order to interact with the existing DeFi world infrastructure, vNFT is compatible with ERC-721 at the implementation level, so that any protocol that supports standard ERC-721 can treat vNFT tokens as ERC-721 tokens.
As mentioned above, vNFT can be adapted to almost all financial NFTs. Looking at DeFi, in various markets such as trading, lending, and insurance, DeFi has shown its advantages over traditional finance: it helps people solve trust problems and facilitate financial transactions at a very low cost. However, the DeFi primary market is still trapped in the “CeFi Era”: it is difficult for investors to circulate their locked positions, and there are potential default risks in multiple links. Therefore, the Solv team chose to use vNFT to create a new DeFi primary market: Solv IC Market as the breakthrough point for vNFT to enter DeFi. Solv IC Market uses vNFT to implement investment certificate bill tokens (IC). IC can express complex lock-up conditions and release modes, and can also support free split and merger, share assets, and each share can support further Operation and status changes. Contract-supervised investment rights, rich and transparent trading experience, and freely circulating global trading markets will be the panorama of the primary market in the new era of DeFi.
According to the members of the Solv team, Solv IC Market is Solv’s first step. They hope to use it to show the potential of vNFT to the crypto world. The core of Solv is to do digital ticket factories, transaction flow infrastructure, and cross-market aggregate liquidity. Pool. More digital tickets and applications will be open to ecological partners to complete, and Solv will open vNFT standards and solutions for free to support, and even provide ecological incentives and subsidies in the early stages of Solv’s development.
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