âšī¸Background Information
Let's get back to the basics! Why are we even working on a platform like this one?
Problem
NFT traders face two major issues in the market. Firstly, they often lack the liquidity to invest in high-value NFTs. Secondly, they can be risk-averse when it comes to buying and selling.
The lack of liquidity in the NFT market is a significant problem. It means that many traders don't have enough funds to buy NFTs, that they are interested in. Additionally, traders might not have enough funds to invest at all. Moreover, the NFT market is very volatile, and traders are not comfortable taking risks, so they hesitate to invest their funds.
Solution
To increase and expand the liquidity of the NFT market, it is important to provide traders and collectors with leverage options without compromising the collectability of the NFTs. This approach can be more beneficial than selling off current holdings or taking out a loan against NFTs.
Utilizing leverage to acquire blue-chip NFTs has several advantages:
Users can retain access to their NFTs' utilities, including airdrops, Discord access, and real-life events, while the NFT stays in their wallets. This allows users to benefit from the unique features and perks of their NFTs while also leveraging their value for other purposes.
Users can participate in the price appreciation of their NFTs and multiply their gains. By acquiring NFTs using leverage, users can benefit from the upward trend in NFT prices and earn profits without having to sell off their holdings.
Users can buy an NFT and pay it back later, providing a level of flexibility that is not available through other financing options.
The proposed NFT leveraged trading platform offers an opportunity for traders to take leveraged positions on NFTs.
Example
Suppose a trader has 50 SOL and wants to trade an NFT worth 100 SOL. The trader can use the platform to borrow the remaining 50 SOL from the platform at an agreed-upon interest rate.
There are two possible scenarios for the trader:
If the value of the NFT increases, the trader can sell the NFT and repay the loan with interest, keeping the profit from the trade.
If the value of the NFT decreases, the trader may be forced to sell the NFT to repay the loan, or the NFT gets automatically liquidated at a pre-established liquidation price.
The platform will use smart contracts to facilitate the borrowing and lending of SOL and the trading of NFTs. Overall, the platform aims to provide traders with increased access to NFT trading opportunities and the ability to amplify their gains and losses through leverage.
Liquidation Price
The liquidation price is the price at which a trader's position will be automatically closed by the platform to prevent further losses. The liquidation price is equal to the amount of SOL being borrowed by the trader.
If the market price of the asset falls below the liquidation price, the platform will automatically close the trader's position, which may result in a loss for the trader. This mechanism helps to protect both the trader and the platform from significant losses due to high volatility or unexpected market movements.
To avoid liquidation, traders can maintain their position by either adding more funds to their positions or reducing their open positions.
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