Original Author: Cookie, Rhythm BlockBeats

Original Author: Cookie, Rhythm BlockBeatspaprMEMEProjects on the NFTfi track are receiving more and more attention. To be introduced this time

Built by 4 ex-Coinbase employees with $3 million in funding from Coinbase Ventures. In fact, they announced in August last year that they had received investment from Coinbase Ventures, when the project was still called Backed. In November last year, they made a new NFT loan model papr based on Backed's experience and achievements, and renamed it paprMEME.

paprMEME was officially launched on February 11 this year. At present, the platform has disbursed more than $100,000 in loans to 43 borrowers, and its native token $paprMEME has a transaction volume of more than $220,000 on Uniswap.

In paprMEME's new mechanism "driven by native Tokens", the holder of $paprMEME is the lender, and the entire NFT lending process is simplified to "transactions on native Tokens."

Mechanism overview: $paprMEME = APR

The borrowing and repayment behaviors of the borrower correspond to the minting and burning of $paprMEME respectively. When the borrower enters the collateral NFT into the smart contract controlled by paprMEME, paprMEME mints a corresponding amount of $paprMEME and transfers it to the borrower, and the borrower can exchange $paprMEME into any asset they want on Uniswap. When the borrower decides to repay to get back the collateral NFT, he needs to repay the same amount of $paprMEME, and these repayment $paprMEME will be destroyed.

The lending rate is in a constant feedback loop with the price of $paprMEME. The lower the transaction price of $paprMEME on Uniswap, the higher the loan interest rate, and the closer the borrower is to liquidation. At this time, the borrower will buy $paprMEME to pay off the loan, so that the price of $paprMEME will rise. Conversely, the higher the transaction price of $paprMEME on Uniswap, the lower the borrowing rate, stimulating more lending to mint more $paprMEME. These $paprMEME will be sold by borrowers, depressing the price of $paprMEME.

The holder of $paprMEME is the lender, and the increase in the price of $paprMEME is the interest of the lender. It can be said that paprMEME adjusts the lending rate according to the price change of its native Token $paprMEME, balancing the needs of borrowers and lenders. The lending interest rate will also affect the price change of $paprMEME, forming a regulatory effect on the price of $paprMEME.

LTV and interest rate calculation

$paprMEME has two prices: "Mark" and "Target". "Target" is automatically regulated by the formula set by paprMEME, and "Mark" is the transaction price of $paprMEME on Uniswap.

The maximum LTV limited by paprMEME is 50%, and the borrower can freely choose the borrowing amount under this maximum limit. The formula for calculating LTV is "oracle(collateral) * maxLTV / Target". Among them, "oracle(collateral)" is the collateral value fed by the oracle tracking the floor price of the collateral NFT series on OpenSea in the past 30 days, "maxLTV" is 50%, and "Target" is paprMEME according to the set formula Automatically adjust the "target price".

Since there is almost always a difference between "Target" and "Mark", the maximum LTV that can be achieved actually depends on "Mark". Assuming that the price feed result of the oracle machine for a certain NFT series is 1000 USDC, and the "Target" is 1.1 USDC, then theoretically the borrower can lend up to 1000 * 0.5 / 1.1 = 454 $paprMEME. From the $paprMEME standard, this result has reached 50% LTV, but if viewed from the USDC standard, if 1 $paprMEME = 1.08 USDC on Uniswap at this time (that is, "Mark" = 1.08), the borrower actually only realized 454 * 1.08 / 1000 = 49.032% LTV.

It can also be obtained from the formula "oracle(collateral) * maxLTV / Target". The larger the "Target", the less $paprMEME the new borrower can lend (for the same NFT series), and the existing borrower will closer to liquidation. Therefore, the change of "Target" is actually an adjustment to the lending rate.

At the beginning, "Mark" = "Target" = 1. By regulating the "Target", different incentives are formed for the buying and selling behavior of $paprMEME. This control process keeps "Mark" and "Target" close to each other, which is actually equivalent to the control of lending interest rates.

When "Target" < "Mark", the loan interest rate is negative and the lender's demand is insufficient. At this time, "Target" will be adjusted according to the formula to provide the borrower with less $paprMEME and shorten the loan repayment period (closer to liquidation), stimulating the price of $paprMEME to rise (providing more interest for lenders). Conversely, when "Target" > "Mark", the loan interest rate is positive and the borrower's demand is insufficient. At this time, "Target" will be adjusted according to the formula to provide more $paprMEME for the borrower and extend the loan repayment period (further away from liquidation), stimulating more lending.

The interest rate formula shows that the loan interest rate of paprMEME is dynamically adjusted according to the coefficient of "elapsed time since the last interest rate change/set time period"

liquidation mechanism

liquidation mechanism

When the borrower's LTV > 50%, its collateral will be liquidated, and bidders need to use $paprMEME to participate in the auction. The method of liquidation auction is an exponentially decaying Dutch auction. The starting price of the auction is three times the time-weighted average floor price of the collateral NFT series, and it will drop by up to 50% every day (according to the official reply on Discord).

When the borrower has multiple collaterals, each collateral will be liquidated separately, and there is a time interval between starting different liquidation auctions to ensure that each auction has enough time to proceed, and it is also possible to make the loan through a single auction The person's LTV drops below the liquidation threshold.

If the amount of $paprMEME raised from the auction is such that the borrower is below the maximum LTV, paprMEME will charge a small portion of the liquidation fee and use the remainder to further reduce the borrower's debt. But if the proceeds from the auction are sufficient to offset the total debt of the borrower, all remaining $paprMEME will be transferred to the lender.

The advantage of using $paprMEME to liquidate is that it can reduce the impact of bad debts to a certain extent. If the borrower is liquidated and the auction proceeds are not enough to repay the debt owed by the borrower, the result is that the $paprMEME minted at the beginning of the debt cannot be fully destroyed, and there will be excess, unsecured $paprMEME that will continue to circulate causing The depreciation of $paprMEME means that the "target price Mark" is lowered, and the lending rate is increased. There is still room to regain balance before falling into a death spiral.

epilogue

epilogue

The mechanism of paprMEME is very novel, but its stability has yet to be tested when a larger amount of funds enters.Currently, paprMEME has a "community NFT" that can be mint. This NFT is not transferable and will change accordingly according to the accumulated XP. The official claims that "community NFT" is just to commemorate everyone's contribution to paprMEME, and does not promise any possible benefits. If you still want to "defend yourself",。