Banksea Finance — The First NFT AI Oracle Protocol and NFT Pool-…

Banksea Finance — The First NFT AI Oracle Protocol and NFT Pool-Based Lending Platform

February 23rd, 2022

In the blockchain industry, NFT occupy a market with a valuation of close to $50 billion, it has been an essential component in the crypto world, and the market still has huge upside. The liquidity of NFTs is affected by the overall state of the market, as well as the popularity and utility of the project, etc. However, sometimes NFT cannot increase capital efficiency or achieve fully liquidity like many cryptocurrencies. And NFT collateral lending projects emerge as the time requires. The current NFT collateral lending project can be roughly divided into four types, lending pool model, Peer-to-Peer model, hybrid model, and other models. The project to be introduced today, Banksea Finance, belongs to the lending pool model, the type placed great expectation in the market.

Introduction

Banksea Finance is committed to building the first NFT AI Oracle protocol and NFT Pool-based lending platform, helping to solve many problems that occurred in the NFT lending market, for example, the lack of NFT valuation mechanism, low asset utilization ratio of NFT holders, and the lack of guarantee for the safety of lenders’ funds. To deal with this, the team has developed an NFT valuation mechanism based on AI technology, providing an NFT pool-based lending solution for the market.

Under lending pool types projects lenders can add their assets into the pool and obtain the corresponding yield while borrowers collateralize their NFT and pay the interest. In Banksea Finance, the whole process of NFT valuation and the interest rate adjustment are provided by its AI Oracle.

Banksea adopts a safe, convenient, and reliable lending model to increase NFT liquidity and improve capital efficiency. This integration of Defi and NFT can bring changes to the whole NFT lending market. Let’s see how it works.

Details

Roles

In Banksea Finance, there are three roles during the lending process. The first one is lenders (liquidity providers), who deposit loan asset (e.g. DAI) in exchange of an interest bearing token - iToken. The second one is borrowers, they can deposit NFT as collateral to take out a loan in the loan asset (e.g. DAI) and owe platform a fixed amount of interest bearing token - bToken. The last one is liquidators. Human or programmatic bot that run the liquidation process when a borrower's health factor has fallen above the liquidation threshold. ‘i’ refers to the lending interest rate while ‘b’ refers to the borrowing interest rate, and both of them are adjusted dynamically by AI oracle. For market participants, there is no lock-up period for their assets.

AI Price Oracle

Banksea develop NFT price oracle for price prediction and risk assessment for Banksea protocol as well as provides standard API services for the NFT ecosystem.

The request runs from USER-SC to BANKSEA-SC ORACLE Contract, then to Banksea-AI-Node. After receiving the request, the node starts querying external APIs and computing the predicted price and risk score by feeding inputs into AI node. Then the node returns the output to Banksea Oracle Smart Contract. Finally, if the consensus can be reached from responses of different AI nodes, the USER-SC will receive the value back. The whole process is user-customized, decentralized，deviation-resistant.

In the economy of price oracle, data consumers pays $KSE as service fee for price prediction and risk score while data providers need to stake $KSE tokens in order to provide service and earn rewards. To ensure the honesty of nodes and improve the quality of service, Banksea Smart Contract maintains a “credibility” score for each offline AI node, which depends on consistency, data retrieval frequency, completeness, and quality, staked $KSE, and request from data consumers. Data providers are able to earn rewards based on availability and accuracy of their information with risk of being confiscated all staked $KSE if their credibility score drops below a threshold.

Liquidation

Liquidation is the most important process to ensure the safety of lenders’ assets. When the health factor falls below the liquidation threshold, Banksea protocol will trigger a liquidation event in order to avoid bad debt. The liquidation process will freeze the collateral asset, list the collateral asset on open markets at a discount, and convert it into loan asset to pay back the loan. Below are liquidation procedure:

1. Terms: NFT holders need to acknowledge and accept the terms that, once a health factor reaches the liquidation threshold (LT), the collateral will enter the liquidation process. The holder needs to accept that once liquidation is triggered, Banksea protocol will confiscate the collateral.

2. Pre-Liquidation & Pre-Sale: During the first 12 hours of liquidation process, NFT collateral owners have the option to pay back the full loan to bail out the collateral. If so, the collateral owner will be able to keep its collateral. At the same time, Banksea will list the NFT collateral on Banksea Marketplace at a discounted price. Liquidators can pre-purchase the NFT collateral by locking in the sale price. If the collateral is bailed out, Banksea will return the liquidator's fund instead. Otherwise, the NFT collateral will be transferred to the liquidator’s address at the end of Pre-Sale.

3. Public-Sale: After the 12-hour long Pre-Liquidation & Pre-Sale, if the collateral owner doesn't bail out, nor does any liquidator purchase the collateral, Banksea will move on to the Public-Sale stage. Banksea’s smart contract will automatically list the NFT on public marketplace (e.g. Opensea). The sale will take place in the form of Dutch Auction, with the Price Oracle's prediction price as the top price and the total loan + interest as the bottom price.

4. Post-Sale: After sale completes, Banksea will use the fund to pay back the full loan first, and distribute fees to liquidators or Banksea protocol treasure. Any excessive fund will be returned back to the NFT collateral owner's address.

5. Bad-Debt: If sale fails, the NFT collateral becomes Bad Debt on Banksea protocol. Banksea will use Security Fund Pool to pay back the loan. See the next section for details.

6. Notification: For every step above, Banksea will send a notification to the NFT collateral owner.

Security Fund Pool

During the operation of the project, especially when suffering a big turbulence in the market, there may be bad debts in the loans. Banksea provides a Security Fund Pool to protect the lender's funds even in extreme market conditions.

According to the different demand of the lenders, Banksea provides two fund pools, one is the Standard Fund Pool. When the liquidation fails, the lender and the Security Fund Pool bear the cost of the debt together. Another is the Insured Fund Pool, whose funds are entirely provided by the Security Fund Pool. And when the liquidation fails, the cost of debt is entirely borne by the Security Fund Pool.

In the Insured Fund Pool, lenders receive a lower interest rate than the Standard Fund Pool. The funds of Security Fund Pool comes from two source, one is 40% of the net interest fees earned by Banksea Protocol, and the other is 100% of the insurance fee contributed by the Insured Fund Pool.

What if the Security Fund Pool has been exhausted? Don’t worry. Banksea Finance well prepared for the Shortfall event, in which case the Banksea protocol doesn't have enough liquidity to meet its financial obligation due to smart contract risk, liquidation Risk, price oracle risk or other risks. When it occurs, the Bankstop Module will be activate to sell $KSE (Banksea governance token) reserves and pay back the loan.

Banksea Finance protects lenders' funds through AI oracle, liquidation procedure and Security Fund Pool, bringing triple security to the NFT collateral lending market.

NFT Collection Whitelisting

Not all NFTs can be mortgaged, only whitelisted NFTs can act as collateral. Before whitelisting an NFT collection, the AI Model must run a hindcast of the collection to determine the NFT Collection KPIs (e.g. risk score). The output will be filtered and sorted, to select the top collections for whitelisting. AI model will iterate and become more robust over time and then bring more kinds of NFT into whitelist.

Competitor Analysis

There are various projects in the NFT collateral lending sector, which can be divided into four types now, Peer-to-Peer, lending pool, hybrid and others. The table below shows representative items in each model.

The Peer-to-Peer model belongs to the type launched earlier in the NFT collateral lending sector, but this model has not been popular and has not led the large-scale growth of the NFT lending market. Projects of lending pool type have attracted more attention from the market. The following section analyzes the advantages and disadvantages of the Peer-to-Peer model and the lending pool model from several aspects.

1. Collateral NFTs: For the projects based on Peer-to-Peer model, both sides argue about the market price and negotiate the interest rate for NFTs, then they reach the consensus. In theory, all types of NFTs can act as collateral, but in fact we see that although many kinds of NFTs are listed by holders, no one is willing to provide loan funds for marginal NFTs. The lending pool model mainly serves mainstream NFT, the type of NFT has formed a strong consensus in the market with guaranteed liquidity.

2. Borrowers: In Peer-to-Peer type projects, the stronger consensus for the NFT, the higher rank of the NFT in its series, the faster and more money can be borrowed in the platform. However in most cases the entire loan process can take many days to complete under Peer-to-Peer model. Additionally, in these projects, a large proportion of NFT holders are institutions or unions. In contrast, the lending pool model is more suitable and convenient for individuals. As long as this type of NFT is on the whitelist, people can quickly mortgage their assets to obtain loans, which is most beneficial for holders who obtain NFT around the floor price.

3. Lenders: Not everyone is suitable to be a lender in the Peer-to-Peer platforms, most people do not have enough ability to rationally judge and predicte the value of NFTs. What’s more, many mainstream NFTs are every expensive, making it difficult for retail investors to become lenders under this model. But the lending pool model collects the money of lenders, selects good NFT projects through multiple audit, and realizes NFT price tracking and NFT liquidation through oracles.

4. Other aspects: Insufficient supply and demand, the long time for contract matching, and the high interest rate of loans are the fatal shortcomings of the Peer-to-Peer model, resulting in a very poor experience for borrowers, which is the root cause of Peer-to-Peer projects suffering indifference in the market. Even the lending pool model projects do not really operate on a large scale, but the logic of the project is clear, borrowers can easily and directly loan from whitelisted NFT projects, and hopefully reduce the 30%-100% interest rate under the Peer-to-Peer projects to an attractive rate between 10% and30%.

In fact, the loan amount of mainstream NFTs accounts for more than 80% of the loan amount of Peer-to-Peer model projects, and the lending pool type projects can well meet the most important needs in the market, and are also expected to greatly increase the size of the NFT collateral lending market. The hybrid model attempts to accommodate the loan needs of marginal NFTs in this way, but its core segment is still NFT lending protocol based on pool.

Investors and Partnership

On January 10, 2022, Banksea Finance announced the completion of a multi-million dollar strategic financing. The round was raised by Petrock Capital、Parrot、MEXC Global、Springwind Ventures、RioDefi、Solar Eco Fund、Digital Renaissance、Zonff Partners、Definitive Finance、Digital Assets、Investment Solutions AG、GTA Venture、INV Ventures、CatcherVC、Palar Capital、XT LABS and so on.

Banksea Finance has won many rounds of competitions due to the outstanding performance of the project:

Winner in IGNITION Solana Global Hackathon.

Filecoin Hackathon 2nd place and jury award.

NEAR MetaBUIDL Hackathon 3rd Prize.

Banksea Finance is a multi-chain protocol and platform. Banksea not only runs on Solana, but also integrates with Moonbeam, the parachain on Polkadoot, and it will also support Ethereum and BSC in the future. Banksea Finance will contribute to NFT price oracle, NFT liquidity and NFT lending across several chains, and hence changing the NFT ecosystem on these chains.

Roadmap and Activities

According to the roadmap of Banksea Finance, IDO and listing is coming soon in 2020 Q1, and the NFT oracle will be deployed on Solana, Polkadot and Ethereum mainnet in the next Quarter. We will see the NFT lending pool on Solana devnet as soon as in Q3.

Banksea’s Genesis NFT CITIZENONE

In January, Banksea Finance launched the sale of Genesis NFT CITIZENONE, where community members with roles can buy 1-2 NFTs for 1SOL, while community members with without roles can buy CITIZENONE for 1.5SOL. Genesis NFT CITIZENONE brings many privileges to community members, including whitelist for oracle, collateral for loans, staking for mining $KSE and Raffle ticket for token airdrop. In addition, mythic NFT holder can share the copyright royalty.

A total of 1781 NFTs were sold in this round. Although the sale of Genesis NFT CITIZENONE has ended, but people still have the opportunity to participate in the project, CITIZENONE has been listed on the NFT trading market in Solana, crypto fans can be purchased through the following link:

Magic Eden: https://magiceden.io/marketplace/citizenone

SolSea: https://solsea.io/collection/61f56d3d6f589f689cbe1c18

Solanart: https://solanart.io/collections/citizenone

In addition, Slope has also listed the Genesis NFT CITIZENONE, you can download its app and trade on Slope NFT market.

Contact Details

Currently, Banksea Finance has 100,000 followers on Twitter and 30,000 community members on Discord, and those numbers are still growing. Follow Banksea Finance's Twitter and Discord for the latest announcement and communicating with community members.