Credit: @minhdonz
Reference
Introduction
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The Problem
Currently, a lack of a standardised valuation method for NFTs affects two stakeholders: traders and NFT finance protocols.
For traders, investing in NFT is a constant struggle against information asymmetry. The resulting volatility deters more traders from entering the space.
For NFT, financialisation protocols are limited due to the difficulty in NFT valuation. Such limitation results in compromised NFT finance solutions, plagued with low LTV, inefficient liquidation thresholds, or high borrowing rates. Arguably the best compromise, p2p lending, presents a system where demand far exceeds the supply of lending capital. Without a common, risk-free valuation system, NFT lending has not been able to unlock the true potential of on-chain lending of collateralised NFTs.
Mission
Abacus is creating the largest market-making platform in the NFT space through liquidity-backed pools while serving as an appraiser for NFT finance protocol to build on top.
How Does It Work?
Simply put, Abacus is a tool to help appraise the value of your NFTs, relying on the market participants in the NFT space for the appraisal.
Abacus utilise a system called Spot Pool. Here’s a basic understanding:
Think total pool value ≤ NFT? Put in ETH
Think total pool value ≥ NFT? Skip
Repeat for other pools
Anyone looking for liquidity can open a pool of one or multiple NFTs. Appraisers, who can be any market participant, lock their ETH towards the price tranches in increments of 1ETH (0-1ETH, 1-2ETH, 3-4ETH, etc.) NFT owners within the pool may close the pool at any given moment and redeem the ETH pool while the NFT is “transferred” to the appraisers. The swap is completed, satisfying the market-making function of Abacus. After the pool closure, the NFT is put up for a 48hr auction; the ending price represents the final appraised value.
The appraised value thus determines how much ETH the appraisers receive for their capital lock-up. If the ending price is higher than the total ETH locked, appraisers receive the premium of the sale. On the other hand, any tranches higher than the ending price results in a slashing of the respective appraisers’ ETH.
This financially incentivises appraisers to be prudent with their allocation. The lower tranches are more valuable, especially when appraising blue chip NFTs. Higher tranches represent more risk, which is further rewarded by Epoch Distribution Credit.
Stakeholders
Appraisers
Appraisers are incentivised to earn as many Epoch Distribution Credits (EDCs) as possible during an epoch, which lasts 30 days. At the end of each epoch, each appraiser can redeem their EDCs for ABC tokens, Abacus’ native token. For each epoch, exactly 20 million ABC tokens are emitted, and the number of ABC tokens one may receive after an epoch is commensurate to one’s share of EDCs earned out of the total number of EDCs earned by all appraisers during that epoch.
Pool Creator
Anyone could be a pool creator, e.g. DAOs, 10k collection team, any individuals, etc.
Pool creators are responsible for determining which NFTs will be able to close on the pool (i.e. trade an NFT to the pool in exchange for the backing liquidity) and how many collateral slots will be allocated within the pool for those chosen NFTs.
Pool Owners
The owner maintains the custody of their NFT. The only case in which this differs is when the owner closes the pool to redeem the liquidity. Once pool owner(s) close the pool, the payout is determined by the number of collateral spots. Payout = Liquidity Locked / Collateral Slots.
Pool owners have four main actions to take:
Sign a proof of life transaction, showing the protocol that the pools aren’t created for dead NFTs.
Toggle emissions,
Remove an NFT
Close an NFT (claim liquidity in the pool)
Revenue Generation
All of the revenue is earned in ETH.
Collateral Slots Reservations: n a pool whereby the number of collateral slots is less than total NFTs, users can reserve the slots for a fee.
NFT closures: Once the liquidity is claimed by the owner through the closure of the NFT, an 1% fee is charged from the pool value.
Epoch distribution credit purchases. A base percentage fee will be collected by the protocol.
Improper appraisals: Funds slashed are booked as protocol revenue
The ABCs of Abacus’ Tokenomics
The network’s native token is called ABC. ABC is paid to appraisers to incentivise them to appraise in a Spot pool.
The raw unit of payment that an appraiser receives is called an epoch distribution credit (EDC), representing a proportional claim on the current epoch ABC emission.
Example: Alice, Bob, and Charlie earn a total of 1000 EDC from appraising during epoch 1. Alice individually earned 200 EDC. Therefore, since Alice earned 200 EDC / 1000 EDC, equivalent to 20% of the total EDC earned, they will receive 20% of the epoch 1 ABC emissions.
Supply
ABC supply increases by 20 million tokens per epoch (30 days).
Demand of ABC
Governance
Four main actions are applicable for governance using ABC:
Whitelisting an NFT collection to be eligible for EDC emissions
Removing collections from the whitelist,
Adjusting marginal positional movement
Adding a pool factory contract. This proposal means the protocol can create different types of Spot Pools, with different denominations (e.g.$DAI, $USDC, etc.) and different token types (e.g. ERC1155).
Collection Gauge through ABC Allocation
Like the Curve War, in each epoch, an ABC holder can allocate their ABC to a collection of their choice, boosting the EDC emission of the respective collections.
Earn yields as Allocators
Allocators participating in the epoch allocation events can receive allocation payments worth 90% of the protocol revenues. The amount of ABC allocated is proportional to the amount of revenue they could claim.
Risks
Dried Up Liquidity Pool in the Winter
During a market downturn, liquidity is generally drained away from the market. This could also mean the liquidity pools in Abacus are dried up. The lock-up period for ETH could range from three days to 9 weeks. One positive that could still incentivise users to lock up their liquidity is the promise of full repayment, as long as the tranche is lower than the final appraised value.
Conclusion
Abacus aims to concentrate on the fragmented liquidity that the NFT space is experiencing. Becoming the layer zero solution for the valuation of NFT. While the product is still some time from launch, multiple partnerships have been developed. Unlockd Finance, an NFT loan platform, will integrate Abacus into their appraisal process to determine the Loan to Value of the deposited NFTs. In addition, Protecc, a protocol aiming to be the go-to Market Maker for the NFT landscape, has announced a partnership with Abacus to bring in “even deeper liquidity to the bustling and vibrant world of NFTs”. It is clear that Abacus has garnered good initial traction in tackling two huge valuation and liquidity fragmentation problems. With protocols like Guzzolene and working with Abacus in a Curve x Convex fashion, the flywheel adoption could be a matter of when.
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