Fren, a new project is launching soon. It might change NFTs furever.

Its ambishusly darin’ 🙊

Heccin scarin’ 🙈

Should u be carin’? 🙉

Let’s find out. 👇

The project in qvestion is FloorDAO.

A new protocol that leverages NFTX and Olympus mechanics to unlock a frozen asset class: NFTs.

And by the by, the answer is “no” this isn’t another attempt to become the reserve currency of the interwebs.

Before we jump into what FloorDAO is all about, lemme do u an quik lurn about the shortcomings of NFTs that make the protocol useful.

🙅‍♀️ The F Doesn’t Stand for F*ck 🙅‍♀️

The F in NFT is a good thing. But problematic. It’s a source and hindrance to value creation for NFTs.

Believe it or not fren, the F in NFT doesn’t stand for what you think it means. It stands for “fungible.”

The N stands for “non.”

And the T stands for Tiddies “token.”

Put that all together and what do you get? Non Fungible Token.

So wot does ‘fungible’ mean? 🤔

If your tokens are fungible, it means they have gross fungus on them and u need to get rid of them quik! Send them to ‘bork.eth’. Hurry!

heh 😈

Just kitten fren. 😽

If they’re fungible, it just means they’re totally interchangeable. If you and I swap 1ETH, then neither of us really care. Because owning one urethreum over another doesn’t impact how valuable we perceive our tokens to be.

But if I offered to trade you 1 Cool Cat for another then you probably wouldn’t be down. Even though they’re both tokens from the same collection.

Why?

Because I might be offering a floor Cat for your rare one (I’m always down to make this trade if ur interested fren). Or you might not want to because you’ve developed a twisted sense of attachment to ur jpeg like a weirdo (a phenomenon known by lab coat wearers as: the endowment effect).

So non-fungibility is a double edged sword, fren. It imbues value through scarcity and uniqueness. But it also dampens value because because it makes things illiquid. ⚔️

And liquidity is the foundation of DeFi. And the concept is important enough to merit a quick 101.

💦 Liquidity 101 💦

Simply put, liquidity describes the ability to cash in and out of an asset.

If something is illiquid, then sellers have a hard time selling. 😃

If it’s liquid, then sellers have an easy time selling. 😢

The ability to sell something easily—gud liquid—depends largely on perceived value. And, ordinarily, the ability to generate value, like a cash-flowing business, rental property, or dividend paying stonk. 💸

This doesn’t hold for all assets though. The perceived value that influences liquidity for stuff like art and NFTs is based on the expectation of a profitable sale in the future.

So art and NFTs require a longer time horizon before they can actualize any value for buyers. Which means the pool of buyers is smaller because most people prefer to invest in things that can net returns right away.

And fewer buyers means even worse liquidity. 😵

As it stands, there are less than 1million people who have ever bought or sold an NFT on the entire planet. And only a small fraction of that actively trade NFTs.

So basically, the F in NFT should really stand for “Fuck me, there’s no liquidity for my fucking jpeg why the fucking fuck did I spend $50,000 on this?!?!” 😱

🏠 Houses to Hotels 🏨

You may recall I spoke about frozen asset classes. And you’re probably wondering how the value in NFTs are ‘frozen’—many of them are worth more than houses.

While NFTs themselves might be valuable, they don’t actually generate value for the holder outside of the ~potential~ premium they might command down the road.

Other than maybe “value” through random p2e utility, but that value generally has an expiry date and or will eventually get banhammered by the SEC.

Think of a house. Houses, until relatively recently, were a frozen asset class.

Or, at least, part of their potential value was frozen. In ye olden days, the only way to actualize value from a house was to sell it, or rent it long term. 🛖

When Airbnb came along, it unlocked the short term, cash-flowing potential of houses. Because it enabled home owners to sell short term rentals to an eager market of short term renters. Suddenly, home owners had access to a stream of value akin to hotels. 💰

NFTs are in a similar boat. A large source of their potential value is locked away like a simp in a cellar.

But FloorDAO might be able to help jpeg owners realize some of that value.

DeFi 🤝 NFT

Much like Airbnb enabled home owners to compete in the short term rental market, FloorDAO is going to enable NFTs to compete in the world of DeFi. 👾

In DeFi, your tokens generate value because they reflect ownership of a (presumably) cash-flowing DAO, protocol, ponzi, etc.

In a regular market, token numba go up/down depending on market expectations of cash-flow (now or in the future).

We’re in a frothy, hype-driven market. So the above doesn’t exactly hold. Even so, your tokens can also generate value if you leverage them effectively. For example, you can swap them, borrow against them, stake them for passive income, and even use them to provide liquidity and earn yield. 🤑

Generally speaking, your jpeg has fewer use cases. You can look at it. Brag about it. Fondle it. Lose it. Simp it. Or sell it.

But when FloorDAO accomplishes its goal, users will be able to earn yield and mint indexes from their NFTs, while market makers can earn trading fees and NFTX vault fees.

It’s worth mentioning there are already DeFi 🤝 NFT innovations in the space. To a limited extent you can borrow against your jpegs, swap, and stake them.

But widespread adoption of financially productive activities for NFTs is lagging because of the aforementioned liquidity problem. Also, when projects bake these financializations into their offering, they flirt dangerously close with what’s acceptable from a regulatory perspective.

🧹 The Floor Sweeping Flywheel 🎡

In order to understand how FloorDAO sweeping works, you need to wrap your head around the two mechanisms at play:

1. the liquidity mechanism carried out by NFTX, and
2. the Olympus bonding mechanism.

🧊 NFTX: Turning Ice Into Water 💦

In order to make something ‘solid’ liquid, FloorDAO leverages NFTX to convert non-fungible ERC721 and ERC1155 tokens into fungible ERC20s.

🥚 Smoothie Translation: These ERCs are different, programable standards for tokens on Ethereum. ERC20s are fungible, while ERC721s and ERC1155s are non-fungible. The difference between the latter two is that ERC1155 tokens represent a class of assets vs ERC721s which indicate unique assets. Jack has a solid analogy from Runescape. 🥚

Recall from our Cool Cat example that fungibility is limited even within NFT projects. People won’t generally trade their Cool Cat for another Cool Cat. 😼

But this is less of an issue for ‘floor’ NFTs. Emotional attachments and ownership bias aside, these floor NFTs are ~basically~ interchangeable—although obvi my cool cat is bettr than urs. 😽

In order introduce fungibility, floor NFTs are pooled together in NFTX ‘vaults’ (which is somewhat of a misnomer btw—they’re simply being stored and aren’t actually locked up beyond reach). These vaults then enable NFTX to fractionalize NFTs and mint ERC20 tokens.

These ERC20 tokens create instant liquidity for NFT holders because they’re 100% fungible like ETH, and they carry intrinsic value from the pooled assets in the NFTX vault (assuming you believe NFTs have value).

Finally, these derivative ERC20s can be used in AMMs just like any other ERC20 that you can swap or provide liquidity for. And with yields in the multiple hundreds, there are good raisins to become an NFT LP.

Yes, fren, that means you can get exposure to NFTs way outside your budget by purchasing these tokens.

FloorDAO intends to build up a treasury comprised of ‘blue chip’ (debatable term) floor NFTs. The goal being to leverage them for trading fees by using the NFTs as liquidity and inventory on decentralized NFT marketplaces (like NFTX). As long as the NFTs remain valuable, the protocol will ~theoretically~ earn fees 4ever. ∞

🌊 Bonding for d33p Liquidity 🌊

The contracts powering the Flywheel are a fork of Olympus V2, so if you’re familiar then a lot of this should ring a bell.

In order to suck in liquidity and value like paint through a hose, FloorDAO will incentivize users to trade PUNK (value) and PUNK-ETH (liquidity) in exchange for discounted $FLOOR. 🐘

To disincentivize selling and encourage hodling, FloorDAO is also borrowing the inflationary rebase mechanism to doll out rewards from treasury growth.

$FLOOR owners stake their tokens for $sFLOOR, which earn $FLOOR rebase rewards every 8 hours. 🕰

Yes, that means the protocol is constantly devaluing its own currency. So holders are further incentivized to stake so they don’t get diluted into oblivion.

If you’re not familiar with this tokenomics model, then you’re probably wary—and rightly so!

How can it be sustainable? 🤨

First, the treasury needs to grow at a similar pace as token inflation. Rebase rewards are only possible when the protocol has the ability to pay them. So the treasury always needs reserves in excess of day to day budget requirements.

The only way to do that is create a self-sustaining positive feedback loop.

It’s very important to recognize that engineering tokenomics is one thing on paper. In practice the result can look quite a bit different. Technically $OHM is working. But investors are choked because the gravitational pull built into the token design brought the price down too low, too quick. So be careful, fren.

When you combine the NFT liquidity mechanism from NFTX with the bonding/rebase mechanics from Olympus, you get:

• d33p, instant liquidity for NFT holders,
• NFT x DeFi composability, and
• protocol owned liquidity to sweep and support floors.

The end result is a decentralized protocol that deepens liquidity for every project it touches, generates sustainable cash-flow from decentralized market maker trading fees, and unlocks greater value for NFTs as an asset class. 🌟

🧹 Getting Off the Floor 🧹

FloorDAO is getting off the ground with a loan from NFTX and public token launch. But that’s a finite amount. The protocol treasury must keep growing. So, similar to Olympus, the protocol grows excess reserves through incentivized bonding—at least initially.

Over time, FloorDAO aspires to ween itself off of bonding and rebase rewards, and rely on trading fee revenue alone.

If it gets to that point, then buckle tf up, fren. 🚀

To wrap this up, I’ll make some remarks on why I’m bullish on the FloorDAO team itself.

First off, the team is friendly and the customer service is unmatched.

Second, they embody the closest thing to true web3 decentralization. If you hop on Coingecko and go through the top 1000 tokens, you’d be hard pressed to find 10 that are actually decentralized.

This commitment to decentralization is reflected in the $FLOOR token launch. There’s no presale. No unfair insider participation.

If you’re interested in FloorDAO, you can learn more about them and their upcoming fair launch on Copper here.

Hope you learned something today, fren. And may your charts be uppey and to the right. 📈

~ bork

*This is definitely not meant to be France (and certainly not Eagle) advice. I am not involved with this project, but I do intend to take a smol position. If you’re new to NFTs and/or DeFi, I recommend you stay away. This project isn’t for noobs.