NFT Trading Efficiency
With the advent of Floor Protocol, the traditional method of liquidating NFTs, i.e., selling to the highest bid in a marketplace, has an innovative alternative. Instead of subjecting your NFT to the often-inefficient marketplace bids, you can now fragmentize your NFT into µ-Tokens and liquidate them via Uniswap V3 Pools. This alternative approach offers more efficiency and control over the liquidation process.
Traditional NFT Liquidation
In traditional NFT marketplaces, sellers are often subjected to the highest bid for their assets. The average spread between the highest bid and the floor price is approximately 1.0%. Alongside an added 0.5% in royalties, sellers can expect a total trading overhead of around 1.5%. Simply put, if you want to sell your NFT quickly, you could face a slippage of 1.5%.
NFT Liquidation through Flooring Protocol
In contrast, Floor Protocol introduces a different method of liquidation. Suppose you own an NFT and aim for swift selling. You can fragmentize your NFT into µ-Tokens and then sell these µ-Tokens on Uniswap V3 Pools.
Calculating the expected slippages on Uniswap V3 can be intricate, so let's start with Uniswap V2 for simplicity. Based on the renowned Uniswap Swap formula, x * y = k, when you sell △x amount of tokens, you receive △y = y - k / (x + △x). Using this formula, we conducted a series of simulations to analyze the potential slippage when selling 1,000,000 µ-Tokens. For this simulation, we assumed a spot price of 10 ETH across pools of different sizes. Here are the results:
| µ-Tokens in Pool | ETH in Pool | ETH Received | Slippage |
|---|---|---|---|
5,000,000 | 50 | 8.308333333 | 16.92% |
10,000,000 | 100 | 9.063636364 | 9.36% |
20,000,000 | 200 | 9.495238095 | 5.05% |
50,000,000 | 500 | 9.774509804 | 2.25% |
100,000,000 | 1,000 | 9.871287129 | 1.29% |
150,000,000 | 1,500 | 9.90397351 | 0.96% |
200,000,000 | 2,000 | 9.92039801 | 0.8% |
250,000,000 | 2,500 | 9.930278884 | 0.7% |
500,000,000 | 5,000 | 9.9500998 | 0.5% |
1,000,000,000 | 10,000 | 9.96003996 | 0.4% |
2,000,000,000 | 20,000 | 9.965017491 | 0.35% |
5,000,000,000 | 50,000 | 9.968006399 | 0.32% |
The result shows that when considering a 0.3% fee to liquidity providers, the Floor Protocol approach shows advantages when the pool contains µ-Tokens equivalent to 100 NFTs.
The Uniswap V3 Advantage
Uniswap V3, with its high capital and trading efficiency, further enhances the Flooring Protocol method. V3 allows liquidity providers to specify their capital deployment within certain price ranges, resulting in an immense capital efficiency boost.
Here are some approximate capital efficiency multipliers for varying price ranges:
| Price Range | Capital & Trading Efficiency |
|---|---|
[P / 4, P * 4] | 2x |
[P / 2, P * 2] | 3.41x |
[P / 1.2, P * 1.2] | 11.48x |
[P / 1.1, P * 1.1] | 21.49x |
[P / 1.05, P * 1.05] | 41.49x |
[P / 1.01, P * 1.01] | 201.5x |
Assuming a modest average price range of [P / 2, P *2], the new method's trading efficiency starts to surpass traditional methods when the pool contains µ-Tokens equivalent to 30 NFTs. When the µ-Token count reaches the equivalent of 300 NFTs, the total trading overhead reduces to below 0.4%.
In conclusion, Flooring Protocol offers a superior alternative to traditional NFT liquidation methods, particularly with large µ-Token pools and the superior capital efficiency of Uniswap V3. For NFT owners seeking swift, efficient liquidation, this innovative approach provides an optimal pathway.
References
https://devweb3.net/how-slippage-works-in-uniswap-v2/ https://ethereum.stackexchange.com/questions/141785/why-concentrated-liquidity-is-capital-efficient
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