Positions: ERC721 Metamarkets

At DKODA Labs, we are hyper-focused on building financial primitives for NFT-based economies.

Positions is an NFT primitive that bifurcates the relationship between a platform and the position being taken within the platform. Traditionally, positions within a trade are stored in a centralized location with an opaque backend (think TradFi and CEXs), blocking the possibility of metamarkets to appear. This creates undesired inefficiencies in the market, such as making it almost impossible to exit a position at an insolvency event. As distributed ledger technology enables more composability across financial use cases, it’s possible to apply first-order principles to some of the core bedrocks of traditional finance.

Metamarkets are a phenomenon where once an asset class is interoperable and composable, the fundamental structure of the environment changes.  Users no longer just trade an item - they can also acquire, post and trade active positions in time.

For example, with Wasabi Protocol, the ERC721 token standard is leveraged to mint a PUT or CALL option on an existing ERC721 non-fungible token.  Breaking this down further, you can see the following:

  • ERC721’s are a wrapper to store any asset, meaning many different financial instruments can be created from this simple mechanism. All existing ERC standards are able to live inside, and whatever use case built on said standard can be represented on-chain.

  • Purchasing a CALL or PUT on an option mints an ERC721 on the ledger, a sub-entity tied to the original asset.  These assets are permissionless and stored in a user’s wallet - they are not in the ownership of a centralized entity.

  • Liquidity itself can be transferred using the same mechanism. Liquidity Providers can create their own pools that create submarkets with liquidity represented as transferable ERC721s.

In the past, these components were tied down within a centralized framework controlled by a single party.  Participants in this system needed to route through a framework that disincentivized ownership, but also mobility.

What happens when someone can trade active positions they have on various markets? What new use cases does this enable? What dynamics materialize?

Leveraging Positions, anyone can create the foundation for a meta market.

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