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Decentralized NFT Options

Just as in traditional art market ...
... the financialization of NFTs is inevitable

NFT Options Powered by Superfluid Runs on Polygon

[JPEGX]

Table of Contents

In a nutshell 🥜

  • NFT holders are not incentivized enough to become option writers, despite the financial upside
  • Our goal is to attract NFT holders to become option writers and bootstrap the NFT options economy

Concept 💡

  • NFT owners can 'write options' on their NFTs
  • Option callers can purchase the options, at a given strike price, for a given premium and time
  • JPEG X options are european, cash settled
  • If the option expires in-the-money, the sequence goes as follows:
    • The NFT holder can provide the strike vs. market price difference to option caller, or
    • Option caller can receive the NFT at option's strike price, or
    • NFT is auctioned off
  • If the option doesn't expire in-the-money, option premiums are distributed to NFT owners
  • NFT owners are incentivized to gain passive income and provide liquidity
    • NFT is returned to owner, even if the option goes against them
    • Option coverage solution is created to protect the owners from large lump sum expense, at expiry

Product 📦

  • Protocol defines strike price and premium pricing options
  • Protocol stakes the NFT for the option duration
    • NFTs are pooled with other NFTs OF THE SAME COLLECTION
    • At staking time, the NFT owner has the option to subscribe to option cover stream
      • The option cover stream continously balances the strike to market price differential for the owner
      • Ensuring the NFT owner doesn't loose the NFT or has to pay large lump sum, on in-the-money option expiry
      • Incentivizing NFT owner to provide their NFTs, improve liquidity and realize financial upside
      • Otherwise NFT owner might need to pay lump sum price differential between strike and market price, to keep NFT
  • Protocol will automatically distribute the share of option premiums to NFT owners in the collection
    • Distributions will happen when the option doesn't expire in-the-money

Technical Implementation 🛠

  • Smart Contract defines option details per NFT Collection and stakes NFTs
    • Strike Price
    • Premium Price
    • Duration
      • Pricing Oracles will be used to establish Strike Price
      • Bonding curves will define strike to premium price for multiple options
  • Martket price will be retrieved by Tellor Oracle
  • Bonding curves will be used to define premiums
  • Smart Contract governs the option expiry and distribution of profit shares to writers or of strike:market price differential to callers
  • To distribute the shares of NFT pool's premiums to NFT owners, Superfluid IDA is used
    • Ensures gas efficient distribuition of pool shares to multiple addresses
  • To create an ongoing option coverage to NFT owner, Superfluid CFA is used
    • Provides ongoing balancing of strike to market price differential for option writers, in a sigle transaction.
    • Keeper will be used for ongoing stream monitoring and flow rate adjustments within the epoch

The flows: 🔎

Technical picture

Business Potential 🤑

  • Notional value of single stock options was over 10% higher than spot in 2021
  • This trend shows no sign of slowing crypto option platforms, such as LRA Opix and Z are growing
  • We see the same happening for NFTs, despite the bear 🧸, the top 10 NFT collections
    • Total over 2.5 million E in market cap
    • Over 3 million in daily trading on OPC alone
    • No team has succeeded yet in finding product market fit and gaining any significant traction.
  • The financialization of NFTs is inevitable

🧐 License

Licensed under the MIT License.

💜 Thanks

Thanks go out to all of the many sponsors and ETHOnline

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