Simplying Crypto Trading through NFTs
The decentralized art movement has demonstrated how powerful pouring art onto the blockchain can be for collectors and artists alike. Artists see a permanent royalty stream from their creations and collectors can display their art anywhere with an internet connection. These innovations have captured the public’s imagination and introduced millions into the power of a digital ledger to connect counterparties in a trustless way.
At the NFTsDAO, our DAO leads are sold on NFT projects that embrace use case innovation. So, when it came to launching a DAO, it was imperative the community would congeals around a use case that is necessary to advance the ecosystem. Blockchain company should be aggressively allergic to complacency for it’s only by standing still can a Web3 company ensure their ultimate demise.
NFT-linked Trading Positions
There’s a considerable appetite for easier crypto-specific trading vehicles. With the advent of meme culture, and Reddit at the center of the internet’s Wall Street Bets saga, along with Instagram skating past Facebook/Meta’s parent platform, on the strength of images to communicate a message, it’s only right that crypto trading take one step closer to mass adoption through a medium that everyone with a smart phone understands: images.
Trading is anything but easy, embracing KYC, AML, Contango, Backwardation, Deposits, Staking, Leverage, Haircuts, and an innumerable trading lingo list that communicates the intimidating world of Wall Street or Chicago’s financial districts. Many investors simply wish to trade consistent with their investment thesis i.e. I believe that Doge will trade 2x higher than Bitcoin one year down the road. For such a situation, a crypto position could be structured, backed by an NFT that visually depicts the position’s specifics, that would go Long Doge and Short BTC.
This simply means that, say, $1000 of Doge is purchased and $1000 of Bitcoin is borrowed such that, if the thesis proves to be correct, then the result will be a handsome profit with, perhaps, $1200 in Doge versus shorting what will be worth $1100 in BTC. The resulting profit would be $100 to reward a correct investment thesis.
Due to the risks involved, and the potential to juice their returns, many prefer to leverage trade. Doing so, however, necessitates additional costs and considerations. If you’re using a perpetual futures platform, you’ll be paying an hourly, dynamic funding rate, that changes minute-by-minute, depending upon the investing community’s sentiments.
NFTsDAO keeps it simple in terms of the amount charged on these leveraged positions: 18%. 100% of this interest earnings go directly to those who stake to provide this liquidity. Risk is removed from the perspective of the lender as the funds are simply being used for collateralization by counterparties who, they themselves, also put up capital, just not as much. As the margin gets closer to the liquidation point, the position, ultimately, is closed out to ensure that no staked capital is at risk.
While trades are bespoke and tailored to an trader’s appetite during beta, a typical trade might be $1000 long Doge & $1000 short BTC where the speculator would put up $200. The other $800 is put up by an investor, earning a handsome $144 yearly on this staking position for providing liquidity.
The speculator’s $200 would incrementally pay this 18% interest in the form of roughly $0.39 per day in interest payments. If the trade works in their favor, their profits would outpace the interest payments. If the trade went against them, there’s a liquidation cascade that happens once this position is down to 5%, representing $50 from this original $200. Once it hits this threshold 1/2 of the $50 is spent on a BTC option such that this position has a denominator that won’t be closed out should BTC move aggressively against the speculator i.e. going way up when they desire for it to go down. If Doge still falls beyond what the option coverage for BTC is covering in terms of a loss the position will then be closed, with the other half, $25, reverting back to the NFTsDAO Governance NFT holders, in equal measure, as a stabilization fee.
We’re introducing opportunities for liquidity providers starting the last week of March 2022 onward at this attractive rate to encourage early involvement in a straight-forward way. Getting in early, as a staker, has proven to be a wise move for historical users of Uniswap, the Ethereum Name Service, and other platforms and we have plans to, similarly, reward those who are in the genesis class of NFTsDAO stakers.
While we’ll do these basket trades, or whatever trades there’s an appetite for, we also see great value in delivering traditional options, priced according to the Black-Scholes model that Wall Street understands. By bringing over instruments that whales are familiar trading, we envision the transition to cryptocurrency instruments to be much more seamless and in the wheelhouse of those who have spent decades operating in this world. By meeting large traders where they’re at, utilizing terms they understand, we, as an ecosystem, stand the best chance of best communicating how suitable cryptocurrencies presently are as exciting trading instruments.
Crypto options and NFT-linked trading positions have the potential, and probability, to scale to the scope presently seen in the equity markets. As a first mover in this space, we aim to build out this user case’s narrative by showing it scaling in a way that we’ve envisioned.
It’s only been in the last few years that cryptocurrencies, with the increasingly deep order books and bot sophistication, have been able to distinguish itself as an asset class on par with mainstream financial instruments as a tool for leveraged trading. Now, after years of figuring it out, crypto is one of the best investment vehicles for speculators and investors to create an investment thesis that can be executed and, with a little foresight, and luck, can prove to be hugely profitable.
NFTsDAO seeks to be the DAO platform that connects a community of investors together as the trusted settlement market maker for these trades, with the settlement all happening on-chain, automatically, directly to the wallet holding the crytpo trade-linked NFT. By stamping out counterparty uncertainty, you will have eliminated a pain point that makes it such that centralized services like Binance, FTX, and Gemini continue to flourish in a world that, absent these exchange experiences, demands decentralization.
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Check with the laws of your local jurisdiction to ensure the suitability of trading cryptocurrencies. Never invest more than you can afford to lose.