paprMEME: NToken-driven, "Hold = Lend" new NFT lending platform

Writing: Cookie, Beat BlockBeats

The NFTfi track project is getting more attention. This time to introduce.paprMEME  It was built by four former Coinbase employees and raised $3 million from Coinbase Ventures. In fact, they announced back in August that they had received funding from Coinbase Ventures, which at the time was called Backed. Last November, they created a new NFT lending model, papr, based on their experience and results, and renamed it paprMEME.

paprMEME was launched on February 11th of this year. Currently, the platform has lent more than $100,000 to 43 borrowers, and its native Token $paprMEME has traded more than $220,000 on Uniswap.

In paprMEME's new mechanism "driven by native tokens", the holder of $paprMEME is the lender, and the whole process of NFT lending is simplified to "transaction of native tokens".

机制概述： $paprMEME = APR

The borrower's borrowing and repayment behaviors correspond to the casting and destruction of $paprMEME respectively. When the Borrower transfers the mortgaged NFT into the smart contract controlled by paprMEME, paprMEME mints the corresponding amount of $paprMEME and transfers it to the Borrower, and the Borrower can convert the $paprMEME into any asset they want at Uniswap. When the Borrower decides to repay in order to retrieve the NFT of the mortgaged property, the Borrower shall repay the same amount of $paprMEME, which shall be destroyed as repayment.

The borrowing rate and the price of $paprMEME are in a constant feedback loop. The lower the trading price of $paprMEME on Uniswap, the higher the borrowing interest rate, and the closer the borrower is to liquidation. At this point, the borrower will buy $paprMEME to pay off the loan and make the price of $paprMEME rise again. Conversely, the higher the transaction price of $paprMEME on Uniswap, the lower the borrowing rate, which stimulates more borrowing to generate more $paprMEME. This $paprMEME will be sold by the borrower, suppressing the price of $paprMEME.

The holder of $paprMEME is the Credit, and any increase in the price of $paprMEME is interest to the credit. It can be said that paprMEME adjusts the lending interest rate according to the price change of its original Token $paprMEME to balance the needs of borrowers and lenders. The borrowing interest rate will also affect the price change of $paprMEME and exert 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 set by paprMEME is 50%, and the Borrower is free to choose the amount borrowed under this maximum limit. LTV is calculated as "oracle(collateral) * maxLTV/Target". "oracle" is the collateral value of the NFT series that is tracked by the prophecy on OpenSea for the last 30 days, and "maxLTV" is 50%. "Target" is the "target price" automatically regulated by paprMEME according to the set formula.

由于「Target」与「Mark」间几乎总是存在差异，所以能实现的最大 LTV 实际上取决于「Mark」。假定预言机对某 NFT 系列的喂价结果为 1000 USDC， 「Target」为 1.1 USDC，那么理论上借款人最多可以借出 1000 * 0.5 / 1.1 = 454 $paprMEME。从 $paprMEME 本位看，这个结果达到了 50% LTV，但是如果以 USDC 本位看，如果此时在 Uniswap 上 1 $paprMEME = 1.08 USDC（即「Mark」=1.08）  ，实际上借款人只实现了 454 * 1.08 / 1000 = 49.032% 的 LTV。

It is also available in the formula "oracle(collateral) * maxLTV/Target". The larger the "Target", the less $paprMEME new borrowers will be able to lend (for the same NFT series), and the closer existing lenders will be to liquidation. Thus, a change in the "Target" is in effect a change in the borrowing rate.

At the beginning, "Mark" = "Target" = 1. Through the regulation of "Target", different incentives are formed for the buying and selling of $paprMEME. This regulation process keeps "Mark" and "Target" close to each other, which is actually equivalent to the regulation of the lending rate.

When "Target" < "Mark" : the lending interest rate is negative and the demand of the lender 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), thus stimulating the price of $paprMEME to rise (providing the lender with more interest). Conversely, when "Target" "Mark", when the lending rate is positive and the borrower's demand is insufficient, "Target" will adjust the reduction according to the formula, so as to provide the borrower with more $paprMEME and extend the loan repayment period (further away from liquidation), so as to stimulate more lending.

The interest rate is calculated by the following formula:

The interest rate formula indicates that paprMEME's borrowing rate is dynamically adjusted based on the coefficient of "time elapsed since the last interest rate change/set time period"

Clearing mechanism

When a borrower 50%, the collateral will be liquidated, bidders need to use $paprMEME to participate in the auction. The clearing auction will be an exponential decay Dutch auction, where the starting price is 3 times the time weighted average floor price of the NFT series of mortgages and drops by up to 50% per day (according to the official Discord response).

When the borrower has more than one mortgage, each mortgage will be cleared separately, and there will be a time interval between the beginning of different liquidation auctions to ensure that each auction has enough time to proceed, or it may be possible to reduce the borrower's LTV below the liquidation line only through a single auction.

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

To incentivize bidders to participate in the liquidation, the first bidder is offered a 10 percent discount on the starting bid price.

The advantage of using $paprMEME for liquidation is that the impact of bad debts can be mitigated to some extent. If the borrower is liquidated and the auction proceeds are not enough to repay the debt owed by the Borrower, as a result, the $paprMEME minted at the beginning of the debt cannot be destroyed in full, and the surplus and unsecured $paprMEME will continue to circulate, resulting in the depreciation of $paprMEME. When the "target price Mark" goes down, the borrowing rate goes up. There is room to rebalance before plunging into a death spiral.

conclusion

The mechanics of paprMEME are novel, but stability has yet to be tested when larger amounts of money come in.

Currently, paprMEME has a "community NFT" that can be minted. This NFT is not transferable and will change based on XP accumulated. The official statement is that the "Community NFT" is just to honor paprMEME's contributions, without promising any possible benefits. If you still want to defend yourself,Please click here.

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