Interpreting NFT AMM Liquidity Solution Midaswap

06/03/2023·1years ago

TL,DR

Liquidity, especially in the Web3 field, can almost be called the most important element in the financial sector. A series of liquidation waves in 2022, from Three Arrows Capital to Celsius Network, Babel Finance, BlockFi, and Voyager Digital, have fully demonstrated the importance of liquidity due to various reasons causing insufficient liquidity, leading to a vicious run on the bank black swan event.

The liquidity problem is not only fatal to the development of DeFi, but also to NFT. Although Opensea, Magic Eden, and other top 15 NFT trading markets in the world occupy the vast majority of the global NFT market share, their total trading volume is still less than 2% of decentralized cryptocurrency exchanges. The problem of insufficient liquidity not only affects the trading experience between NFT users, but also hinders the further expansion of NFT to the outside world. Therefore, the veDAO Research Institute has specifically summarized and sorted out the Alpha projects in the current NFT liquidity solution field for readers.

Project Introduction

Midaswap is an NFT automatic market maker (AMM) protocol based on Liquidity Book, deployed on Ethereum, Polygon, Arbitrum, Optimism, and Celo. It aims to aggregate different pricing strategies of different LPS in the same liquidity pool through customizable liquidity positions, Multihop Swap, and other means, to achieve full aggregation of FT asset liquidity.

Team Background and Financing Situation

Team Background: It is reported that the Midaswap team was formerly known as QilinDAO, an early active DeFi development team. However, as of now, the Midaswap official has not released more detailed information about the team members.
Financing Situation: It is reported that the Midaswap project has currently received investments from Polygon Venture, Foresight, and other institutions, with an estimated initial valuation of 20 million US dollars.

Business Segments and Implementation Mechanism

Business Purpose: Midaswap provides a new solution to the liquidity problem in NFT trading.
There are mainly two current NFT liquidity solutions:
NFT Fragmentation: Essentially, NFT fragmentation is to generate multiple ERC-20 tokens associated with indivisible ERC-721/1155 NFT through contract deployment. In this way, anyone holding these ERC-20 tokens can have partial ownership of the associated NFT. In a broad sense, fragmentation aims to make NFTs become liquid, profitable, and productive FT assets.
NFT AMM: NFT AMM is a decentralized alternative to centralized NFT markets such as Opensea, X2Y2, or Magic Eden, which mainly uses liquidity pools to achieve frictionless and low-cost trading. Due to the low accessibility of NFTs, even blue-chip NFTs may have little liquidity in the current centralized market. Through NFT AMM, anyone can add liquidity on-chain and earn a certain amount of trading fees.
Business Description: Midaswap chooses the latter and, based on this, achieves NFT liquidity expansion by defining the NFT: FT trading pair as LP and jointly building a liquidity pool. According to the Midaswap whitepaper disclosure: in the liquidity pool, LPs will provide NFT or FT liquidity within the price range they set.
For NFT liquidity providers, the upper limit they set will determine the price of their last NFT transaction, and the lower limit will be the price of the first NFT transaction. All these NFTs are priced proportionally by default.
For FT liquidity providers, the upper limit they set is the price of their first NFT transaction, and the lower limit is the price of their last NFT transaction. By default, all this liquidity is priced proportionally.
Implementation Mechanism:
Liquidity Book: It is divided into different price containers (Price bin) by different prices, and further aggregates liquidity to price intervals with high trading frequency (near low prices) by encouraging LP trading fee income incentives, thereby achieving effective liquidity.

LP Trading Pair: Essentially a smart contract that allows you to instantly exchange between two assets. In Midaswap, each NFT collection corresponds to a liquidity pool between NFT and FT (ETH/WETH/stablecoin), which means that anyone holding NFTs in the collection can immediately exchange them for ETH or stablecoins, and vice versa.
Liquidity Pricing Methods: Constant Sum Market Maker (CSMM): X+Y=K, low liquidity, no slippage, suitable for scenarios with less price changes. However, because this formula is too rigid, it is easy to break the asset pool when there is a large market difference between X and Y. Therefore, Midaswap chooses a combination of CSMM and limit order liquidity pricing scheme, that is, to set an effective trading range within the critical point of X&Y value collapse.

Protocol Revenue Sources

Overnight Interest: When traders trade assets provided by LPs (including NFTs and FTs), overnight interest accumulates as a percentage. The fees will not be automatically reinvested into the position, and LPs need to manually redeem them from the pool.
Royalties: Royalties are a fixed income rate encoded into the smart contract by the NFT project party at the time of release. In Midaswap, a certain usage fee will be charged for each NFT transaction, and a fixed proportion of the transaction amount will be transferred to the claiming address set by the project party whitelist.
Protocol Fee: Midaswap's built-in protocol rate is 10%. 10% of the trading fees earned by LPs will be transferred to Midaswap's treasury. At the same time, for users who sell NFTs with limit orders on Midaswap, 100% of the fees collected during the transaction process will be transferred to Midaswap's fund pool.

Economic Model

According to the official documents released by Midaswap, the elements of the Midaswap ecosystem are divided into NFT and Utility Token: MIDAS.
Among them, NFT plays the role of voting/governance/flash loan in the ecosystem.
MIDAS mainly functions to exchange NFT by burning tokens and as rewards for users using the product.
The following is the token allocation information for MIDAS:

Operation Status

Official Website: https://midaswap.org/
Twitter: https://twitter.com/Midaswap_
Discord: https://discord.com/invite/FNkFwBQNaT
Currently, the overall operation level of Midaswap is still in the early stages of the project.
Product Side: No test products are currently available.
Operation Side: 2980 followers on Twitter, 39 members on Discord.

Competitor Analysis

Sudoswap: sudo AMM allows the provision of single-sided or two-sided liquidity pools for NFT or ETH, adjustable liquidity pool parameters at any time, a platform transaction fee of only 0.5%, and no royalties.
Pikoswap: Pikoswap is an on-chain NFT AMM, where users can freely and flexibly trade NFTs and establish their own NFT liquidity pools to earn trading fees.
Goat Swap: Goat Swap is an NFT AMM on Solana, founded by the co-founder of the Solana on-chain trading aggregator Jupiter Aggregator. Through GOAT Swap, users can create liquidity pools to buy, sell, and trade NFTs. The most common liquidity pool in GOAT Swap is the NFT SOL pool, where anyone holding the corresponding NFT in the liquidity pool can exchange it for SOL.

Conclusion

Overall, compared to mature NFT AMM products in the market, Midaswap has a certain degree of innovation; however, both its team background and VC background are not particularly impressive. But it is undeniable that with the development of the Web3 industry, NFT, as an important carrier and the best scene for external image display, is bound to be favored by more people, and the NFT AMM track is bound to have a broader development prospect. As a member of the Polygon ecosystem, Midaswap may have the opportunity to explode in the future with the prosperity of NFT products on the Polygon chain.

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