In our previous blog post, we dived into the SeaCows protocol and what it can do. In this follow-up post, we dive into its usability.

AMMs can be powerful. Protocols such as Uniswap, Curve, and Balancer have defined DeFi, yet NFT AMMs are an entirely different beast and offer innovation in entirely new ways. But how…?

The mechanics of an NFT AMM

The Seacows AMM connects two groups: traders and liquidity providers (LPs). These groups can buy and sell NFT assets or add and remove liquidity from the protocol.

Buying and selling NFTs

In order to acquire an NFT asset, traders can explore available pools as can be seen below. These pools contain at least one NFT along with ERC20 Tokens. Liquidity pools not only allow traders to make an instant purchase decision at a predetermined price but also enable fully decentralised peer-to-pool transactions.

Once decided on the desired pool, the buying process is as easy as selecting an arbitrary amount of NFTs, confirming the swap and ultimately paying for it/them. NFT tokens are taken out and ERC20 tokens are deposited into the pool.

Similarly, the selling process is equally simple. In case you own NFTs that are part of a collection of a created pool, you can select and instantly sell an arbitrary amount of NFTs. As a return, you will receive an indicated amount of ERC20 tokens that are part of the pool. ERC20 tokens are taken out and NFT tokens are deposited into the pool.

In case there is no available pool to which your NFTs can be sold, you can become a liquidity provider and earn.

Adding and removing liquidity

Liquidity providers (LP) create the liquidity pools that traders can interact with. As a result, they receive trading fees as traders swap with their pool.

LPs add liquidity by depositing a token pair of ERC20 tokens and NFT tokens. In the process, they define a price range within which the NFTs are being traded. Whenever traders interact with the pool, the price is affected. However, it cannot go past the set price range. This enables a high amount of liquidity while protecting the liquidity provider. After creating the pool, any LP can add additional liquidity, or remove the liquidity they have contributed.

In order to remove liquidity, the LP can simply select the items inside the pool to be taken out and deposited back in their wallet. Important to note, that when removing liquidity LPs have to consider the pool’s balance in order for it to function (i.e. when taking out 5 NFTs only the corresponding amount of ETH can be taken out).

The core features explained above define an NFT AMM. They offer a higher degree of liquidity as well as more ownership to liquidity providers. And this is just the start…

Its decentralised and permissionless nature will initiate a new era of NFT ownership and interoperability.

Want to test it out?

On the 30th of August, we will be launching our testnet version. As part of our selected test partners, you will be able to try out all the functionalities above. Make sure to follow our Twitter and reach out to us via Telegram.

You can also check out: seacows.io