We are thrilled to announce Fusible, an experimental price discovery protocol for NFTs, scheduled to go live on the BSC mainnet in Q2 2021.
The evil in auctions
Auctions have been the most popular way of trading NFTs across the most popular platforms. While auctions provide a great mechanism of discovering price, they are not as efficient as traditional open order book based bids/asks mechanism price discovery. The inherent constraint in having an open order book of bids/asks for an NFT is in the very nature of an NFT being non-fungible.
The time factor is another constraint that an auction suffers from. Creators have to either settle for the highest bid obtained in a specified period of time (potentially leaving money on the table) or will have to indefinitely wait for liquidity till a bidder emerges and matches the ask.
DeFi, liquidity pools, and DEXs have now provided us with newer avenues of looking at price discovery from various angles.
Liquefying NFTs to discover price equilibriums
We, at Fusible, are researching various mechanisms through which a creator can realize immediate liquidity and a collector can quickly realize price action.
The result of this research is the release of Version 1 of the Fusible Price Discovery Protocol.
Fusible: Version 1
The process of liquefying NFTs has 3 steps:
- Deposit NFT
- Fuse Process (Mint FTs for the deposited NFT)
- Initialize Seed Liquidity
Deposit NFT into the Fusible Contract
The user fetches their NFT contract address and provides that as an input to the Fusible contract. They also provide the token ID of the NFT as an input to the Fusible contract. On a successful deposit, a new Fusible Deposit Receipt hash is generated and presented to the user.
The user provides the following as inputs to the process:
- Fusible Deposit Receipt hash (generated in the previous step)
- Desired name of the FT that will be generated.
- Desired total supply of the FT that will be generated.
On successful Fuse, the user is presented with FT address
Initialize Seed Liquidity
This is the final step of the overall process, wherein the user sets the index price per token before price discovery kicks in. The user provides the following as inputs into the process:
- FT address (Fusible generate token address from previous step)
- Number of tokens that will seed the liquidity
- Initial collateral to seed the pool (in BNB)
A pool on AMM is created for the user (BNB/FTs), with the FTs representing the deposited NFTs as shares on successful seeding.
For example: A user can generate 100 tokens in Step 2. Whereas, in Step 3, they can initialize the AMM pool with 10 FT(generated in Step 2) and 0.1 BNB to get an index price of 0.01 BNB for each FT share. The rest of the generated FT shares absent in the AMM pool can be sold on Fusible. Thus, that would follow another price discovery mechanism using the Fusible Curve that can be configured to have a fixed or variable price.
This process of listing on two platforms, AMM and Fusible, will enable the user to gain maximum price discovery from mutually exclusive price action at these platforms resulting in arbitrageurs stepping in to take advantage of price imbalance, the result being an equilibrium price between two platforms.
The mechanics of Price Discovery (Version 1)
Price for fused NFTs will be discovered parallelly on two platforms, one on AMM and the other on Fusible, by leveraging the algorithm on Fusible.
We are employing AMM to help the users gain maximum exposure to their fused tokens both in terms of reach and liquidity.
The price discovery of the initial seed tokens on AMM will follow the standard AMM protocol (reference to AMM/PancakeSwap/Uniswap Whitepaper), whereas, on Fusible, the price discovery will follow the Bancor Formula with constraints on parameters
Return = _supply * ((1 + _depositAmount / _reserveBalance) ^ (_reserveRatio / 1000000) — 1) (reference to Bancor Whitepaper)
_supply = token total supply
_reserveBalance = total reserve balance
_reserveRatio = reserve ratio, represented in ppm, 1–1000000
_depositAmount = deposit amount, in reserve token
The platform token, FUSI’s primary utilities constitute the following:
- Weekly platform token rewards for buyers and sellers who transact on the marketplace based on their activity during the week
- Voting on proposals for curation
We are excited to announce a “First Adopters Reward” program!
The first set of users who fuse their NFTs on Fusible will be rewarded with FUSI tokens from a separate pool created for First Adopters.
The mechanism of First Adopter Rewards will be detailed in a later blog.