Convex’s Curve PUSd LPs
Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
One of the most desirable use cases in DeFi yet to be fully realized is borrowing instant liquidity against NFTs. Many teams raised money during the bull run promising to build the world’s best NFT lending platform, including borrowing against the aggregate value of a basket of NFTs, but as time has passed, it seems likely a lot was overpromised while the earliest innovators in NFT lending continuing to build and gain market share. One example in particular is NFTfi.
Launched in 2019, NFTfi is a decentralized p2p marketplace for over-collateralized loans in WETH or DAI, backed by NFTs. It requires a borrower to match with an individual lender, while only putting up one NFT at a time, but as of today, it’s the leading NFT-backed loan issuer with 67,301 ETH + 43,144,234 DAI in total loan volume.
What’s promising is we’re still in the early development of instant p2pool borrowing against NFTs (ie DeFrag) and others platforms for borrowing against a basket of NFTs (ie PWN, Arcade) vs a single high-value NFT like NFTfi. Btws, NFTfi confirmed they will also look to support borrowing against baskets of NFTs, pending a future EIP enabling nesting NFTs on Ethereum.
More recently, JPEG’d launched as a decentralized lending protocol on Ethereum that enables NFT holders to open collateralized debt positions (CDPs) using their NFTs as collateral. Here’s how it works:
- Users mint PUSd, the native stablecoin of JPEG’d, enabling them to effectively obtain leverage on their NFTs, based on the floor price of the NFT collection.
- The protocol is managed by a governance token, JPEG, that will oversee, administer, and change/update parameters to the protocol.
- JPEG’d is permissionless, decentralized, and is not controlled by any central entity.
- JPEG’s aims to eventually allow any NFT collections, voted by JPEG-powered governance, to obtain a line of credit using their NFTs as collateral on the protocol. Today, JPEG’d supports CryptoPunks, BAYC, MAYC, and EtherRocks.
- All debt positions allow for 32% of the collateral value to be drawn and liquidation occurs if the debt/collateral ratio is 33% or greater for CryptoPunks, BAYC, MAYC, or EtherRock NFT-backed CDPs. For example, if an NFT is valued at 100 ETH, a user can draw up to 32 ETH. If the NFT collateral value drops slightly or the user draws more debt that changes the debt/collateral ratio to 33% or higher, he or she will be liquidated.
- Interest for all loans at launch will be 2% annually. Interest is accrued each block. There is also a 0.5% deposit fee assessed when debt is drawn in PUSd. For example, if a user deposits a valid NFT and draws 10,000 PUSd as debt, he will receive 9,950 in PUSd (10,000 PUSd debt minus the 50 PUSd deposit fee). This position will start with 10,000 PUSd debt and increase incrementally with each block.
Due to the demand to borrow against these 4 major collections of NFTs and the need to pay back loans + interest to JPEG’d, one can provide liquidity for the stablecoin pool in Curve composed of PUSd, USDT, USDC, and DAI. I’ll show how I can become a PUSd Curve LP and stake the LP in Convex to net out 18% vAPR thanks to trading fees, CRV rewards, and CVX rewards.
How to Earn Up to 18% vAPR with a…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
