JPEG'd: Beginners Guide
A look at innovative product that bridges DeFi & NFTs to create a new DeFi primitive.
JPEG’d is the place where NFTs meet DeFi. It’s founded by @Defigod1 (follow on twitter) and is backed by some of the brightest minds in this space. Digital art NFTs is something that has resonated with a lot of non-crypto native people, and JPEG’d will be that potential bridge that brings more people into DeFi and the broader crypto ecosystem.
What does it do?
NFTs have 2 key problems, they are extremely illiquid which makes pricing them very difficult & they’re a very static investment, you just hold them in your wallet without being able to put that capital to use. JPEG’d allows you to deposit your NFTs as collateral against which you can borrow the native stablecoin PUSd (not relevant but its pronounced puss-dee apparently). This is the creation of a new DeFi primitive known as Non-fungible Debt Position (NFDP). Now NFT holders will have more capital efficiency. They can earn yield in DeFi, trade, or do whatever else they please while still owning their Jpegs. The pricing aspect comes from the use of chainlink oracles which will be spoken about in further detail below.
The team has stated that initially you can only borrow against cryptopunks, however, as time passes you will be able to deposit all kinds of NFTs such as apes, aliens, rocks etc. Digital art is only one way in which JPEG’d can be used. Once NFTs are used more widely, say, in the music industry for example, artists can then use their music NFTs to establish a line of credit through JPEG’d.
Okay, It’s understood that you lock NFTs in a vault to mint PUSd, but how does it actually work?
Lets start of with PUSd, the initial liquidity will be provided by the DAO to try and make sure that it stays as close to $1 as possible. The team & advisers are gigachads who have already made it and have tons of capital so this shouldn’t be an issue. As the project grows, there will also be incentives provided to any participant who is willing to provide liquidity for PUSd. These incentives will gradually decrease over time.
The loan position is an overcolllateralised one, more specifically, users can withdraw 32% of the collateral value at 2% interest. The 2% interest is what it will be at launch, but it will be algorithmically adjusted to ensure that it stays competitive against the broader DeFi lending market. In order for depositors to get back their NFT, they have to pay back the debt + any accrued interest.
Be cautious thought because there is still a chance of liquidation. If the NFT exceeds or equals a 33% debt/equity ratio, then it will be flagged for liquidation. Liquidations can only be conducted by the DAO and once it takes place, the NFT will either be sold in the secondary market or OTC. However, they are making a new mechanism wherein if a depositor is liquidated, there is still a way for them to get back the NFT. When a deposit is made, the user can pay a non-refundable 1% insurance fee. So in the event of a liquidation, the user still has the right to buyback his/her NFT. However, it can only be bought back after the user pays the debt + accrued interest + a 25% liquidation fee to the DAO.
If you have bought a NFT before then you may know that all NFTs from a collection aren’t valued the same, some are clearly valued more than other based on characteristics/traits. in such a case, holders will want more credit on their NFT. To do this they will have lock the native token $JPEG (more on this below) into a smart contract for 1 year. In addition to locking the tokens, the DAO governance and user have to agree on a certain value for the NFT after which extra credit can be taken. To understand how much of $JPEG has to be locked I will explain it using the example given by the team in their medium article. Suppose the agreed upon price for a more valuable NFT is $1m, then the user has to deposit $82,500 worth of $JPEG. 1m (collateral value) * 33% (max loan amount) * 25% (premium) = $82,500.
Tokenomics
Lets start with the distribution. There will be a total of 69,420,000,000 $JPEG tokens which will be distributed as follows:
· DAO – 35%
· Donation event - 30%
· Team – 30%
· Advisers – 5%
JPEG is a governance token. Users are required to have the token to vote on things like increasing debt, the agreed upon value of rarer NFTs (as mentioned above), interest fees, changing debt deposit limits, new accepted NFTs etc. Additionally, if you stake your $JPEG you will get a portion of the fees generated by the protocol.
The cool part is that there is going to be an ICO for this token. The date is yet to be announced but I recommend following them on twitter (@JPEGd_69) and also join the discord if you want to stay updated on when it’s going to launch and how you can access it.
Collabs
Remember I mentioned that the team & advisors are a bunch of gigachads, well their list of collaborations only furthers my point. They are working with some of the best DeFi protocols to be perfectly interconnected in the ecosystem.
Chainlink –
For those who don’t know, chainlink is the leading oracle provider service in DeFi. The collaboration between JPEG’d and Chainlink is essentially the most important aspect of the project. They are creating a custom price oracle which will somewhat accurately track the price of a NFT. Given that it is an extremely illiquid market with wash trading and other types of price manipulation it will be difficult to accurately price it. Additionally, different NFTs within a collection are priced differently. To combat this, the custom price oracle will use a Time Weighted Average Price (TWAP) of sales and floor prices to create a relatively accurate blended price. For a more detailed overview of how it works, click here.
Olympus DAO –
Through Olympus pro, JPEG’d DAO will launch bonds for the $JPEG token. much like how Olympus owns most of its protocols liquidity in its treasury, JPEG’d will do the same. There will be a JPEG/ETH pair on sushiswap which will have deep liquidity anyway, but users will also be incentivized to provide liquidity to this pair. Users who provided liquidity can sell their JPEG/ETH LP tokens to the DAO to get a discounted price on $JPEG.
Tokemak –
For those who don’t know Tokemak has this product called a token reactor which is essentially a way for a liquidity pool of a token to have deep and long lasting liquidity without needing to spend lots of money on liquidity incentives. For this reason, JPEG’d DAO will be launching their own token reactor for the $JPEG token to ensure that they minimize their costs of incentivizing liquidity.
Abracadabra Money –
Abracadabra.money is a place where users can deposit interest-bearing tokens as collateral to mint the stablecoin $MIM (Magic Internet Money). This collaboration is for the benefit of the PUSd stablecoin. There will be a pool created on Curve Finance which will have MIM PUSd USDC USDT. User can swap between these stablecoins, but they can also provide liquidity to these pools and earn $JPEG and $SPELL as rewards. The ultimate aim of the collab is to help maintain the PUSd peg to $1.
Dopex –
Dopex is a completely trustless, decentralized, and on-chain options exchange. They are making some groundbreaking stuff to make decentralized options feasible and easy to use. The collab here is to create a SSOV (single staking options vault) for the $JPEG token so users can buy call options etc. the other part is to allow users to use their minted PUSd to participate in trading the options of other tokens like ETH. This is just the beginning, the team has hinted at more types of features to be launched in collaboration with Dopex.
So this is pretty much it for JPEG’d. It’s an innovative product that has genuine potential to takeoff in the future. It is currently live only on the Kovan testnet and the launch on mainnet should be expected relatively soon. Keep your ears to the ground to know when the ICO takes place, I have a feeling it might be worth it. Also, DON’T EVER FADE TETRANODE, it’s literal financial suicide.
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