3. Decentralized NFT liquidity protocol offering NFT lending and loan services
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ProTradex currently offers a decentralized NFT-based leveraged mortgage lending protocol, which is different from the current NFT lending platforms on the market.
ProTradex not only allows users to stake NFT assets into a pool of funds to obtain crypto assets such as USDT, but also supports them to stake crypto assets in the agreement to borrow funds through leverage and use them to purchase blue chip NFT within the platform and make profits when the price of NFT rises.
Currently, we offer three types of lending agreements for users to choose from. They are perpetual loans, flip loans and bonds, which differ in loan-to-value (LTV) ratio, interest rate, and lending cycle.
Perpetual loan
Perpetual NFT loan has no loan cycle and is available to users at a dynamic low interest rate, but users need to pay attention to the staking rate of funds to prevent liquidation.
Flip loan
Short-term loan cycle with fixed interest rate, and can be redeemed before maturity.
Bonds
Offers a relatively high loan-to-value (LTV) ratio, fixed short-term loan period, and can be redeemed before maturity.
Comparison between the three products
Borrowers can borrow USDT from the isolated lending pools and will pay a dynamic interest rate.
Borrowing rate for each collection is dynamic and is based on the amount of liquidity available in the associated isolated lending pool.
Their relations are:
High liquidity and low utilization rate = Low borrowing interest rate
Low liquidity and high utilization rate = High borrowing interest rate
Upfront fee at loan creation
For each Perpetual loan the protocol charges a 1% (of the loan value) upfront fee, that is independent from interest.
LTV and Liquidation price
For each Perpetual loan, the borrower can define the amount of USDT he is willing to borrow compared to the value of its collateral. This ratio is called the "Loan to Value" (LTV).
The chosen LTV will define the liquidation price of the loan :
High LTV = high amount borrowed compared to the collateral value = high liquidation price
Low LTV = low amount borrowed compared to the collateral value = low liquidation price
Over-collateralization and loan's health
The principle of over-collateralization is that every debt is secured by a collateral, whose value significantly exceeds the value of the debt.
The ratio between the amount of debt and the amount of collateral is an indicator of "health" (the loan's health). It is the borrower's responsibility and interest to keep track of it.
The amount of debt changes over time (interest will come), and the amount of collateral can also change because NFT collections and their items can both rise and fall in value, and the price oracles track these changes.
For Perpetual loans, there is no time limit for the loan to be active, but in order to maintain the loan "healthy" the borrower may need to repay it partly from time to time.
If at any point the "loan's health" goes into the margin of safety, the borrower will be notified, but if he takes no action and the loan's health reaches 0%, it will enter the 12h Grace Period which is the last chance for the borrower to repay its debt. In the event of repayment default ProTradex will then have to liquidate the collateral.
Liquidations for Perpetual loans
Key definitions
Loan's Health = (1-(liquidationPrice/valuation))*100%
Liquidation Price = total debt + total debt * margin of safety
with total debt = amount borrowed + accumulated fees)
Margin of safety (by default) = 30%
Notifications
We encourage borrowers to connect their discord account on our app in order to receive important notifications regarding the status of their loans :
Loan creation notifications
Margin call notifications
Grace period notifications
Liquidations for Perpetual loans
Every loan is considered separately so you could be liquidated for a specific loan even if you have USDT or other collaterals available in your wallet.
Loan's Health is calculated by an algorithm using debt, current FP and collection volume. If the health of the loan reaches 0% then the loan enters the 12h Grace Period , which is the last chance for the borrower to repay its debt (loan value + the interest + a 10% penalty). In the event of non repayment of the debt during the Grace period the collateral NFT will be transferred from the borrower's wallet to be liquidated in a raffle.
For lending USDT to Perpetual loans borrowers. We decided to go for risk-isolated lending pools so lenders can allocate their funds to the collections they trust the most
How are lending APRs calculated?
Each collection whitelisted for Perpetual loans will get its own isolated lending pool. The list of collections available for Perpetual loans is available here.
Lending APR for each collection is dynamic and is based on the amount of liquidity available in the associated isolated lending pool:
High liquidity and low utilization rate = Low lending interest rate
Low liquidity and high utilization rate = High lending interest rate
How is the interest generated distributed?
The borrowed interest rates paid are distributed as yield for lenders who have deposited in the protocol, excluding a share of yields sent to the ecosystem reserve and another share going to ProTradeX as revenue.
This interest rate is paid on the capital that is lent out then shared among all the liquidity providers.
The higher the utilization rate the lower the profit rate for ProTradeX and the higher the deposit rate for depositors (lenders rewards)。
The 30% reserve factor for Perpetual loans and Isolated lending pools is a safety mechanism that is progressively fueling the ecosystem reserves. These reserves are being accumulated and stored in case of bad debt or any black swan event happening so the protocol can repay lenders in such cases.
Private isolated lending pools
They are the same as public isolated lending pools with the exception that:
They are funded by teams and/or DAOs.
For that reason the deposit link is private.
The idea is that we don't want lenders to deposit their $USDT into a low liquidity pool they know nothing about, nor can we vet low volume projects requesting a private pool. That's why we won't display these pools on the public lending page. However if the project wants to share the link e.g. with some community whales who'd like to contribute liquidity, it's up to them. We just want the link to be kept relatively private and not be widely circulated to the point it becomes an open secret. Note that liquidations will go to public raffles.
Why are you applying for a private pool for your collection?
Your collection doesn't qualify for Flip or Perpetual loans.
You want your collection to "be on ProTradeX" in order to enable your holders to borrow against their NFTs.
You have the funds and are ready to fund your private isolated lending pool.
For Perpetual loans
ProTradex’s interest rate model is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate ü.
ü is an indicator of the availability of capital in the pool. The interest rate model for Perpetual loans is used to manage liquidity risk through user incentivizes to support liquidity:
When capital is available: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage repayments for the loans and additional deposits.
Borrow Interest Rate Curve
Deposit Interest Rate Curve
Base Interest Rate 3%
Interest Rate Model
Liquidity risk materializes when utilization is high, it becomes more problematic as gets closer to 100%. To tailor the model to this constraint, the interest rate curve is split into two parts around an optimal utilization rate:
With *(1+0.15) being the additional 15% fees on the borrowing rate.
Model Parameters
It's also key to consider market conditions: how can the asset be used in the current market ProTradex's borrowing costs must be aligned with market yield opportunities. Or there would be a rate arbitrage with rational users incentivized to borrow all the liquidity on ProTradex to take advantage of higher yield opportunities.
When market conditions change, the interest rate parameters can be adapted.
Borrow Interest Rate Curve
Deposit APY
The borrow interest rates are distributed as yield for lenders who have deposited in the protocol, excluding a share of yields sent to the ecosystem reserve and another share going to ProTradeX as revenue. This interest rate is paid on the capital that is lent out then shared among all the liquidity providers.
Deposit Interest Rate Curve
Borrowers can borrow USDT from the aggregated lending pool for a relatively short amount of time and pay a fixed fee with linear daily fee accrual.
Borrowers can get an instant loan of 20%-50% floor price of their NFT in USDT for 7 to 14 days. Borrowers have to repay the loan back + accrued daily fees within the next 7-14 days. When the borrower initiates the loan, the protocol counts the first day. Fee bump will then occur every 24H from loan inception.
The interest rate offered to the borrowers at the time of the loan is dependent on the utilization rate of the aggregated lending pool at that time and can be calculated with the simplified interest model for Flip loans.
We encourage borrowers to connect their discord account on our app in order to receive important notifications regarding the status of their loans :
Loan creation notifications
Loan expiry (24H in advance) notifications
Grace period notifications
Executed liquidations notifications
Every Gnomie and every 10 ProTradeX points unlock 1% discount on lending fees for Flip loans so that
100 Gnomies = 1,000 ProTradeX points = free loans
Note that free/discounted loans will be capped in value. The higher the amount of $PDT (upcoming IDO token) you stake the higher your cap on free/discounted Flip loans.
If the borrower doesn't repay his Flip loan before the end of the 7-14 days period, his collateral NFT will enter the 12H Grace period during which he can still repay the loan back + the interest + a 10% penalty. If he doesn't repay his debt during the 12h Grace period his collateral NFT will be transferred from his wallet to be liquidated in a raffle.
For lending USDT to Flip loans borrowers, how is the lending APR calculated?
Lending APR for the aggregated lending pool is dynamic and is based on the amount of liquidity available in it:
High liquidity and low utilization rate = Low lending interest rate
Low liquidity and high utilization rate = High lending interest rate
The aggregated lending pool will fund all the Flip loans.
How is the interest generated distributed?
80% goes as rewards (APR) to lenders proportionally to their ownership of the aggregated lending liquidity pool
10% goes to the partner collection (or to ProTradeX if there is no partnership with that collection)
10% goes to ProTradeX as revenue
Simplified Interest Model
For Flip loans, ProTradex’s interest rate model is calibrated to manage liquidity risk and optimize utilization. The borrow interest rates come from the Utilization Rate U.
U is an indicator of the availability of capital in the pool. The interest rate model for Flip loans is used to manage liquidity risk through user incentivizes to support liquidity:
When capital is available: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage additional deposits.
Base Interest Rate 2%
Interest Rate Model
Interest rate Rt
Model parameters
Deposit APY
The deposit APY Dt:
What are Bonds?
Bonds are a new lending product unlocking several highly competitive features, such as higher Loan to Value (LTV), lower fees, the possibility for lenders to fund loans partially and to sell them instantly to other lenders (via Automated Market Maker (AMM))
The UX for the borrowers is very simple and similar to the experience they are used to with our existing products. With Bonds, borrowers can still benefit from an improved UX via bulk loans and 12-hour Grace Period protection.
Lenders can decide to use the easy-mode or the pro-mode. The easy-mode is very similar to the experience they are used to with our existing products (they deposit USDT in a lending pool and earn yield over time), while the pro-mode is for users willing to manage their loans manually in order to earn higher yield.
Technically, Bonds are fungible tokens that can be traded between borrowers and lenders:
Borrowing money = Creating, then selling bond tokens to lenders
Lending money = Buying bond tokens from borrowers, then burning for USDT
These bond tokens accumulate yield over time, which lenders can collect if they hold the bond tokens until loan expiration. Alternatively they can instantly sell these bond tokens to other lenders (using Cross-Token AMM).
Why use the Bonds?
Below are a few capital efficiency use-cases :
Borrow to buy/trade/mint NFTs
Borrow to buy/trade tokens
Borrow to arbitrage NFTs or tokens
Borrow to lend at a higher rate
Borrow to provide fungible liquidity on AMMs such as Orca or Raydium
Borrow to provide NFT liquidity on NFT AMMs such as Hadeswap
Borrow to participate in ProTradeX liquidation raffles
Lend at different available risk levels in order to earn yield on your USDT
Lend to get defaulted NFTs at discount if the borrower doesn’t repay at expiration
Key concepts of the Bonds
✅ As a lender = funding 1 full jpeg = buying 1 Bond = buying 100 FND tokens
Borrowing = (issuing +) selling bond tokens to lenders
Lending = buying bond tokens from borrowers (+ burning them when redeeming for USDT)
✅ When the borrower pays back his loan, the lender(s) can redeem their bond tokens (FND tokens) for USDT proportionally
✅ When lenders decide on the LTV parameter of their offers, it will follow the market until the offer funds a loan. The LTV% is therefore relative to whatever the floor price is (as opposed to an absolute USDT amount)
✅ Lenders using the pro-mode compete in one single order book but on two levels :
The LTV (= the risk level) per bond
The Interest (in %) for the duration of the loan
For each LTV%, the offer with the smaller Interest% is higher in the order book and therefore more likely to be fulfilled by borrowers
Competitive advantages for borrowers
Higher LTV than competition (more efficient liquidity)
Lower fees than competition
Possibility to bulk borrow/repay for better UX than competition
12-hour Grace Period protection for better UX than competition
How complex is it to borrow money with Bonds?
For borrowers the user flow is exactly the same as for Flip and Perpetual loans, just the loan parameters (LTV, interest rate and duration) will be different. We plan on unifying the user flow for our three loan types so in the end the borrower just decides on the terms without having to choose between different loan types.
What are the protocol fees for the Bonds?
2% of loan value upfront (waived for a period of time to promote product launch)
10% grace period penalty fee
Competitive advantages for lenders
Lenders can earn higher Interest% via higher risk loans
Lenders can fund loans partially (half of a SMB for example vs 1:1 loans on other platforms). Smaller lenders can now fund loans for more expensive but less volatile bluechip NFTs
Lenders can fund loans in bulk
Loans are tradable - Lender can exit/sell the loan instantly to another lender (via AMM) before the loan expires, that way the lended liquidity isn't stuck during the duration of the loan
Lenders have the option to get defaulted NFTs when funding full loans
Compounded interest for lenders depositing in Easy-mode lending pools
How complex is it to lend money with Bonds?
Lenders can choose to use our Bonds in two different ways :
Easy-mode: using the “Lending” tab
This is very similar to our lending pools for Flip and Perpetual loans. As a lender you can deposit your USDT and define the risk level (higher risk = higher LTV). In the background an automated strategy will use the pool liquidity to fund loans
Pro-mode: using the “Bonds” tab
This interface is for more experienced lenders willing to fund loans manually. They will earn a higher yield in pro-mode because they will be able to fund more loans by sometimes undercutting the automated strategy
There are currently 5 distinct protocol fees :
Revenue : 1% upfront fee on Perpetual loan value
(Revenue : up to 2% upfront fee on Bonds value)
Revenue : 15% fee on Perpetual loan borrow rate (see below)
Revenue : 20% fee on Flip loan borrow rate (see below)
Revenue : 10% penalty fee on loans entering the 12h Grace Period
Reserve : 30% reserve factor on Perpetual loan borrow rate.
Interest distribution for Perpetual Loans
Reserve factor and ecosystem reserves
The 30% reserve factor for Perpetual loans and Isolated lending pools is a safety mechanism that is progressively fueling the ecosystem reserves. These reserves are being accumulated and stored in case of bad debt or any black swan event happening so the protocol can repay lenders in such cases
Interest distribution for Flip Loans
Phase 1 — Raffles for liquidated NFTs
If a liquidated NFT hasn't been repaid during its 12H Grace Period it will then automatically become eligible for the liquidation raffles in which ProTradex stakers and Gnomies holders (later PFP & $PTD stakers) will be able to participate.
How does it work?
Raffle tickets only for ProTradeXs stakers & Gnomies holders (later PFP & $PTD stakers)
The amount of Player points you stake defines the amount of daily raffle tickets you refresh everyday.
All tickets (used or not) are burned at the end of the day.
New raffle tickets are automatically redistributed every day (24h after using them)
The raffle tickets are bonded to NFTs. So, if you use a ticket from 1 NFT, this NFT will be "empty" for the next 24 hours, regardless of which wallet holds it
Participating in the raffles
The upcoming liquidation raffles will be displayed in the Grace List on ProTradex platform.
At the end of the Grace Period, the collateral NFT gets taken from borrower and enters the raffle round which is 10 minutes. During this time our holders can:
submit USDT deposits (equal to repay value : loan value + accrued interest which is on average at around 50% from current floor price).
define the amount of tickets they want to spend on this raffle.
After the 10-minute time window ended, the protocol picks 1 winning ticket at random out of all. The user who submitted the winning ticket gets the collateral NFT, the other participants get their USDT back, all tickets are burned (refreshed in 24 as of now).
The raffle mechanism incentivises holders to use our app daily as only active users/holders actively participating in the raffles will be eligible to win tickets.
Phase 2 — AMM liquidation
If there was 0 participants in Phase 1, the collateral NFT is being liquidated in Hadeswap pool or Hyperspace instant sell
Phase 3 — Public British Auction
If there is no ability to liquidate the collateral NFT in AMMs (no offers for this collection) then the NFT goes on Public British Auction, where liquidation price gets lower over time (potentially creating bad debt and loss of funds).
Pricing oracle is the most crucial part of the Loans product as it evaluates the floor value of NFTs in real time which then enables defining loans value for all loans and liquidation price for Perpetual loans.
We are currently using the NFT AI oracle from Banksea.finance (and we plan on adding Hellomoon.io rice oracle very soon).
As an additional safeguard mechanism we will compare the result with the floor price of Hyperspace.xyz. So the price used by the protocol is the average of the two (will soon become three).
Our oracle is using TWAP to prevent flash price manipulation.
Points per NFT
We currently have two NFT collections : ProTradex & Gnomies. In 2023 we will migrate these two collections to a new united PFP collection.
Each of our NFTs has two distinct points levels :
Partner points for Sustainable passive income & Governance voting power
(704,000 Partner points in total for all ProTradex & Gnomies)
Player points for Raffle tickets & Discounts on Flip loans
(37,575 Player points in total for all ProTradex & Gnomies)
Note that each ProTradeX type is worth an amount of points equivalent to its rarity level while rarity doesn't matter for Gnomies
Partner points
For Sustainable passive income and Governance voting power
100% of our protocol revenue and 100% of our royalties revenue will be entirely used to buy back our token (with 50% of the total revenue) + provide liquidity for it (with the other 50% of the total revenue). Then we distribute the same amount of token that we buy back to our holders (neutral market impact passive income inflation):
50% of the buyback will be distributed to PFP stakers
(proportionally to total Partner points staked)
50% of the buyback will be distributed to $ProTradeX stakers
(proportionally to total $ProTradeX staked)
Player points
For Raffle tickets & Discounts on Flip loans:
Every Player point unlocks 1 ticket for the Liquidation raffles during which participants can purchase NFTs at up to 50% below floor price.
Every Player point unlocks 1% discount on borrowing fees for Flip loans.
