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Generate Direct Income: Supply NFTs to Earn Yield
NFT suppliers provide their existing NFTs to earn customizable interest. Particle builds upon a key assumption that sophisticated market participants trade a large volume of (near-floor) NFTs as if they were fungible. Therefore, importantly, when a supplier withdraws the NFT from Particle protocol, the supplier might receive a different NFT from the same collection.
In the following, we walk through how NFT suppliers specify and accept terms for a short position to earn interests, and the ways the supplier can exit from a position.
Position Parameters
Since Particle protocol is peer-to-peer and oracle-free to NFT floor price, each NFT supplier individually specifies and agrees on the position parameters. There are two parameters associated with each position: Collateral and Interest Rate.
Collateral: If the trader fails to repay an NFT to the supplier, the supplier is eligible to withdraw the collateral via an auction. The collateral is free to set at any value up to 1000 ETH. The collateral determines how much a trader needs to pay to open a position, the detailed breakdown is in the trader-side view.
Interest Rate: When the NFT is borrowed to open a short position, interest starts to accrue linearly over time. The interest rate is free to set at any value up to 1000% APY. The collateral is the principal that the interest rate applies on. Accrued interest is transferred to the supplier once the position is closed. Particle protocol shares 10% of the accrued interest with the supplier.
The supplier is free to update the collateral and interest rate any time on-chain, as long as the NFT has not yet been borrowed.
Supply or Accept Bid
The suppliers are free to specify any interest rate and collateral, but the traders are free to choose (and refinance) the most competitive offerings. For each collection, Particle frontend surfaces the current lowest collateral and interest rate among all suppliers.
To decide on the optimal parameters, another way is to accept trader side bidding. Traders can put down margin upfront and suggest a collateral and interest rate. If accepted, the NFT is directly routed to a market sell, in the same on-chain transaction as accepting the bid.
Withdrawal
When an NFT is supplied, the supplier has two ways to exit: withdraw NFT or withdraw ETH.
Withdraw NFT: If a supplied NFT is not yet borrowed, or the position is closed with an NFT returned (different NFT from the same collection), the supplier can withdraw the NFT any time. Whenever an NFT is returned, interest is accrued for the timespan of the opened position.
Withdraw ETH: if the supplier starts an auction, and there is no buyer accepting the auction, the supplier can withdraw the collateral locked in the contract, any time after 36 hours. For the ETH withdrawal option, there is no interest accrual for the last opened position (because withdrawing the collateral already seizes the entire collateral).
At each position closing, interest is accrued to the supplier's account balance, for more efficient gas. The supplier is free to withdraw account balance into ETH any time.
Each closed position automatically puts the returned NFT up for borrow, with the same collateral and interest rate parameters. This design allows suppliers to passively keep accruing interests across multiple runs of positions.
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