Thread by @alexcoen_

With @Tetranode shilling his bags on @UpOnlyTV, I took some time to dig deeper into some of his pet projects.

JPEG'd (@JPEGd_69) is up first

$JPEG

1/20

JPEG'd is a lending protocol for NFTs. It will allow NFT holders to borrow against the value of their favorite .jpeg profile pic.

Initially, #CryptoPunks will be the only collection supported by the project. Others, like @BoredApeYC and @EtherRock will follow later

2/20

JPEG'd turns NFTs from static investments to yield-generating assets.

As NFTs gain adoption and new use cases become mainstream, this opens up a world of possibilities for the owners.

3/20

Imagine a musician owning the rights to her music catalog as an NFT. With JPEG'd she could open up a line of credit against the value of that catalog.

The power of what this will eventually unlock is still way way underestimated.

4/20

For now, Punk holders will be able to borrow 33% of the value of their NFTs in $USDp, the JPEG'd stablecoin. Aliens and Apes will be valued at a fixed amount of respectively 4000 and 2000 ETH. All other Punks' value will be a TWAP of the floor price and sales.

5/20

As with all overcollateralized borrowing, the solvency of the protocol and stability of its stablecoin rely on the collateral being accurately priced. When collateral value drops below the LTV ratio, liquidations will happen

JPEG'd will use @chainlink price feeds for this

6/20

The Chainlink price feed uses a TWAP of sales and floor prices. This eliminates outlier wash trades, and makes manipulation much harder and expensive to pull off.

7/20

Obviously, not all NFTs of a collection have the same value. Some attributes are valued higher than others. To cater to this, borrowers can request to raise their credit limit. This is done by locking up $JPEG for 1 year.

8/20

The amount needed to be locked up depends on the size of the loan the borrower wants to get.

Governance and borrower agree on the value of an NFT. Let's say $1M. The borrower locks up $1M * 33% (max LTV ratio) * 25% = $82,500 worth of $JPEG ...

9/20

... He can now borrow ~$333k instead of whatever 33% of the TWAP floor price at that moment would be.

10/20

This is where, along with the governance voting rights, $JPEG gets its fundamental value from, as it scales with the value of the Crypto Punk market.

It also creates a supply sink for the token.

11/20

For an additional 1% on top of the borrowed amount, borrowers can buy insurance against liquidation. With this insurance, and given the loan + accrued interests have been paid back, borrowers that got liquidated can buy back their NFT at a 25% liquidation penalty

12/20

My initial criticism against using NFTs as collateral for loans was the illiquid nature of the asset. When prices quickly drop, who can assure there will be a buyer in case of liquidations?

JPEG'd solves this by only allowing the DAO to conduct liquidations.

13/20

All debt within the system will also be underwritten by the DAO, to make sure all outstanding debt as well as accrued interests can be paid back at all times.

14/20

What makes me extra excited about JPEG'd is that, even though the project hasn't officially launched yet, the list of other protocols it will integrate with at launch or later on is promising:

15/20

Olympus Pro (@OlympusDAO): bond program for the ETH/JPEG liquidity pool on @SushiSwap

$OHM $SUSHI $JPEG

16/20

Tokemak (@TokenReactor): launch of Token Reactor to deepen $JPEG liquidity. This will reduce the need to pay high liquidity incentives.

A $PUSd reactor for the Curve pool might be introduced later on.

$TOKE

17/20

Abracadabra Money (@MIM_Spell): LP's in the PUSd/MIM Curve Factory Pool will get trading fees on steroids. $CRV, $CVX, $JPEG and $SPELL as incentives.

18/20

@dopex_io: less concrete but there are plans to launch Single Staking Option Vaults for JPEG. This will allow holders to buy call options on JPEG using the liquidity pools and options management suite provided by Dopex

$DPX $rDPX

19/20

In summary, a combination of great tokenomics, the safe choice to focus on CryptoPunks only at first, the Chainlink oracle approach & a great founder with Tetra's advice could make this the protocol exactly what DeFi needs to get NFTs onboarded in the composability ship.

20/20