My Neighbor Alice introduces the next generation NFT — collateral-filled NFTs (cNFTs)
Non-fungible token (NFT) is definitely among the hottest topics nowadays with crypto artist Beeple auctioned its piece for an astonishing 69 million dollars, making it the fourth most expensive art piece by a living artist. Since the establishment of ERC721, the standard of issuing NFTs, developers, creators and artists have been experimenting with this technology for digital arts, decentralized games and also financial products.
While the NFT market is very popular, an important issue for the collectors is getting access to liquidity. For fungible tokens, there are both centralized and decentralized exchanges offering opportunities for buying and selling. For non fungible ones, currently the marketplace liquidity is still not optimal. According to nonfungible.com, the daily sales volume for NFTs are around 6 million USD; in contrast, the daily volume for crypto overall is over 100 billion USD. As a result, what might happen is that you list your NFT for sales, but it will take you a few days if not weeks before another buyer buys it, similar to the arts market — where liquidity is not usually the primary concern. In order to provide more liquidity to the collectors in My Neighbor Alice, we designed the collateral-filled NFTs, so that users could not only enjoy a monthly interest on their NFT holdings but also have access to instant liquidity when they want to liquidate the NFT.
Introducing the cNFT
Here is an example of how collateralized NFTs (cNFTs) will work.
Player Oscar is interested in buying a piece of land in My Neighbor Alice. He participated in the land auction and successfully won a land for 100 dollars. When he transfers 100 dollars to the Alice foundation reserve, a certain percentage will go into the collateral pool. Initially, the collateral pool will be dedicated to DeFi protocols to earn interest — and the interest earned will be rewarded to NFT holders based on their contribution. During this time, Oscar could transfer to other players at a price that mutually agreed on, and the price also includes the collateral amount initially designed for the NFT. At the time that the owner would need immediate liquidity, while a buyer cannot be found yet, the Alice foundation could lock the NFT and return the collateral amount to the owner. When the collateral is returned back, the NFT would be functional again.
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