NFT 作为 DeFi 中的抵押品(第二部分)

2022 年 2 月 11 日

Another Approach to NFT Valuation

In Part I of this Mettalex Research series we explored two different price discovery mechanisms for NFTs, namely auctions and fractionalization. These two valuation approaches are mainly focused on digital art and collectible NFTs. They have already been proven to be inefficient or non-applicable in the case of NFTs representing tokenized real-world (i.e. physical) assets.

We are therefore dedicating this article to a third price discovery mechanism – the Appraisal Model, and with it – a whole new ecosystem of projects that aim to bring the real-world and DeFi closer together.

The Apprisal Model

The Appraisal Model requires a third party (usually an expert) to estimate the value of an asset or a right and to act as an intermediary between the physical and the digital world. In fact, the Blockchain Act in Liechtenstein mentioned in the previous piece has already regulated the rights and obligations of the so-called physical validator – a licensed professional who not only appraises the asset’s value, but also has the duty to oversee the transfer of assets and rights, and in some cases to ensure the asset’s proper storage in a vault.

This newly-defined role is essential for the integration of blockchain networks with the real world with the validator acting as a synchronization mechanism between the two.

The fundamental problem with the Appraisal Model is, however, the need to trust a third party in a decentralized and trustless system. This method relies heavily on the appraiser’s expertise, reputation, and honesty, which creates a single point of failure and goes against the very concept of decentralization.

Peer Prediction Models have emerged to address the “third-party problem”. They offer innovative approaches to extracting information from various relevant sources and thus mitigating the trust problem. A noteworthy example here is UpShot – the first project adopting and combining the benefits of peer-to-peer networks and appraisals.

UpShot uses machine learning models sourcing historical sales data and NFTs metadata to construct reliable NFT pricing at scale. It enables NFT experts to get paid for offering honest insights, data, and expertise in a totally decentralized way. Thus, UpShot opens the road for appraisal models’ further implementation by providing price insights for asset classes that lack price discovery mechanisms altogether.

Real-World Assets and DeFi

Integrating physical items and property (referred to as real-world assets or RWAs) into decentralized finance (DeFi) dApps has been and still remains a significant challenge due to remaining regulatory uncertainties and regulatory fragmentation. Yet the efforts persevere since that market is potentially worth trillions of dollars.

Imagine how valuable would be to be able to use an RWA to generate a passive income or get a loan in crypto assets or stablecoins.

The majority of projects tokenizing real-world items in DeFi mirror the most common use of RWAs in traditional finance, namely – collateral for lending and borrowing. Tokenization and fractionalization, however, enable a new use case – fractional ownership of high-value assets. Imagine owning 1/8000th of one of the last 13 surviving copies of the original print of the U.S. Constitution in the form of an NFT. That NFT could potentially pay you dividends, rental, or generate another form of passive income.

Putting aside tokenizing high-value historical items or artistic pieces for now, this article will focus on real-estate-collateralized lending and borrowing DeFi protocols.

Decentralized Lending / Borrowing Backed by Tokenized RWAs

Tinlake | Centrifuge

Tinlake is a protocol based on the Centrifuge OS – an open, decentralized platform connecting the global financial supply chain that enables borrowing against non-fungible assets (e.g. invoices, receipts, real-estate). It uses a standardized approach to tokenizing and trading illiquid RWAs and was the first to successfully perform a decentralized loan borrowing backed by real estate.

How does it work?

There are 4 parties in the Centrifuge system: borrowers who are the originators of the underlying real-world asset; lenders/investors who provide the funding; operators* – third parties that are responsible for underwriting and valuing the assets and keeping the portfolio balanced; and keepers – third parties that are whitelisted and are in charge of loan liquidations. (*注意: underwriting is the process through which an individual or institution takes on financial risk for a fee).

The underwriters receive access to the private data of the asset and have to verify the authenticity of the asset. They are also responsible to set the parameters related to the interest rate and the collateralization ratio applied. They do that by defining the principal (representing the maximum loan amount) depending on the estimated credit risk of the asset.

Borrowers

Once an operator has underwritten the underlying asset, the borrower submits the real-world property to be tokenized by Centrifuge i.e. represented on Ethereum as NFT following the ERC-721 standard. Then the NFT is transferred to the Tinlake system as collateral for borrowing stablecoins such as DAI and USDC. It gets locked into a pool containing all collateralized NFTs.

In exchange for the locked NFTs, the protocol mints fungible ERC-20 tokens, called Collateral Value Tokens (CVTs). Each CVT represents a fraction of the respective set of collateral. As borrowers deposit NFTs into Tinlake, new CVTs are minted on-demand to draw DAI from a Vault. The total amount of CVTs minted always represents the value of the entire pool containing the backing NFTs. This ensures that the value of the CVT is stable at $1 of the underlying collateral. If a new loan is taken out by locking a NFT, new CVTs are minted to represent the pool value increase. In case of repayment, the corresponding CVT amount is burned and the NFT transferred back to the borrower. The CVT balance is adjusted when individual NFTs representing real-world assets increase or decrease in value.

The newly-minted CVTs are used as collateral and locked into DeFi lending protocols, such as Compound and Maker to allow instant smart contract-based lending. The tokens issued by the Tinlake smart contracts are interest-bearing tokens that represent a claim on a fraction of the proceeds of the entire pool.

For the borrowing to be performed the originator (AKA Asset Originator) needs to set up a legal entity, a Special Purpose Vehicle (SPV), often referred to as the Issuer.

SPVs keep all financings remote and separate from the originator and ensure that the NFTs existing on-chain have a legal claim on them. In this way, each Tinlake contract has a corresponding legal entity represented by an SPV. This is the counterparty to the originator issuing the NFT and it is the entity providing the financing denominated in DAI.

Lenders / Investors

For its first iteration of real estate-backed lending, Tinlake | Centrifuge allied with Maker DAO, and all Maker investors in practice acted as Tinlake lenders. Here is how that worked:

The Maker Community i.e. all holders of the governance token MKR vote on how the DAI stablecoin should be governed with the aim of ensuring its stability, transparency, and efficiency. They decide how and when DAI is generated and what collateral assets are deposited into Maker Vaults on the Maker Protocol to back its supply.

In November 2020, the Maker Community approved a proposal to further diversify the collateral the Maker protocol accepts for loans beyond crypto assets and stablecoins to include RWAs. Furthermore, a proposal to accept an ERC-20 token representing shares in a pool of real estate assets as collateral in the Maker protocol was approved at the beginning of April 2021 thus announcing the onboarding of Tinlake | Centrifuge on the Maker system.

The Tinlake | Centrifuge system provides for the Issuer to issue two tranches of ERC-20 tokens – DROP and TIN.

  • DROP tokens represent a senior tranche, where investors enjoy a lower but fixed rate of return (4% APR) and bear less risk;
  • TIN tokens are issued by the junior tranche, have higher, volatile returns, and take on more risk of defaulted loans

The TIN token is subject to the first losses and acts as a buffer to the DROP token. The aim of this is to protect the investors in the senior tranche as the DROP one is protected by over 15% of the TIN tranche. Investors can opt to purchase either DROP or TIN.

The process described above is called waterfall. Most waterfalls run on the principle that proceeds are distributed from the top (i.e. senior tranches) to the bottom (i.e. junior tranches). The motivation underlying this is determined by the fact that junior tranches tend to bear the losses and defaults thus protecting the higher tranches. That is, losses or defaults are allocated from bottom to top.

The Investor can at any time request redemption of its DROP or TIN tokens, whereas DROP tokens have priority over TIN tokens and TIN token investments must not fall under the threshold of the minimum TIN buffer set for the pool. The redemptions are executed pro-rata between the addresses requesting a redemption on a best effort basis.

New Silver was the first company whose DROP tokens have been accepted by Maker, representing loans underwritten by the former. The DAI minted by Maker against the DROP collateral from New Silver can be used to finance new loans for real estate renovations, thus increasing their market value so as to gain a profit once the loan is paid back. Both New Silver and Centrifuge have agreed to invest among other investors in the TIN tranche to demonstrate their confidence in the asset pool.

Later on, the Aave Community also came on board and backed Tinlake | Centrifuge by approving a proposal for the creation of the RWA market on Aave. The RWA market launched in December 2021 with 7 Tinlake | Centrifuge pools, including a New Silver Series 2 DROP. According to their announcement, “this will allow Aave Depositors to earn yield against stable, uncorrelated real-world collateral and will allow Centrifuge Issuers to stake collateral and borrow from the market.”

Liquidation

According to Centrifuge’s documentation, the liquidation of an asset from a Tinlake pool is executed by keepers (i.e. liquidators). Keepers are whitelisted and can also be assigned to specific loans. If no dedicated keeper is assigned to a loan, all whitelisted keepers are eligible to collect the loan. At the creation of every loan a threshold is set, that defines the maximum debt amount per loan. If the debt is higher than the loan threshold, liquidators can remove the underlying NFT from the Tinlake pool at a price supplied by a service provider (e.g. a dedicated valuation firm, through a price oracle). The funds salvaged by the keeper are transferred by the Tinlake contract to the two tranches of investors following the waterfall model.

NAOS Finance

NAOS Finance is a decentralized lending protocol that facilitates the borrowing of crypto assets by using RWAs as collateral. The protocol consists of two sub-protocols:

Formation is a liquidity protocol that provides yield farming for the synthetic token “nUSD” which represents a fungible 1:1 claim of deposited stablecoin collateral. Formation represents the point of entry to the Galaxy protocol (see below), and features 3 main elements: Vault allows users to deposit stablecoins to generate synthetic assets (i.e. nUSD). Transmuter guarantees the value of the synthetic asset nUSD and allows users to stake it to earn stablecoins, representing the yield from yearn.finance. 农场 provides NAOS token rewards to liquidity providers.

Galaxy is a lending protocol allowing borrowers to complete the loan application and asset tokenization processes. Its model is similar to Tinlake’s – the main roles are borrowers, lenders, and liquidators. Galaxy connects with Formation and other lending protocols for sources of lending capital acting as the bridge between RWAs and DeFi liquidity. Lenders are able to provide capital to alpha and beta pools, whose characteristics are as follows:

  • Alpha Pool: Available to KYC-ed investors and lending protocols. The liquidity provided is in stablecoins and used as lending capital for RWAs. Investors can get interest from real-world assets and NAOS tokens in return.
  • Beta Pool: It is an insurance staking pool that serves as a first-loss-guarantee to the Alpha pool. KYC is not required. Beta insurance token is the LP (liquidity provider) token which is the proof that the user provides liquidity for the beta insurance. Users can deposit nBUSD, which is generated from NAOS liquidity protocol Formation, and get the LP tokens.
  • Boost Pool: By locking NAOS tokens in this pool, investors get extra NAOS rewards but also boost the NAOS token rewards in the Alpha Pool. The longer the locking period, the higher the rewards.

LandOrc

LandOrc is another protocol aimed at bridging the real estate funding gap through collateralized lending. It also uses an operating model involving SPVs which are domiciled within each of their operating markets.

The LandOrc system comprises of three different tokens:

  • LandNFT tokens based on the ERC-721 standard and representing the real estate collateral;
  • LORC tokens are utility ERC-20 tokens that provide digital asset owners the means for staking on property development projects available on LandOrc platform in exchange for staking rewards;
  • LGOV is LandOrc’s governance token that gives the community voting rights.

Seems like the project is currently focused on establishing their LORC token and listing it on various exchanges. According to their documentation, LandNFT creation will be available only in markets where an affiliate legal team is present.

Atomix

Realizing the potential of RWAs in decentralized finance, Fetch.ai set up Atomix to provide borrowers secured lines of credit in stablecoins. Users who are not cash or crypto-rich but dispose of valuable physical assets can benefit from Atomix. By tokenizing the security taken over a variety of assets – from real estate through music royalties to machinery and equipment, borrowers can use those as collateral to receive loans in stablecoins/fiat currency.

Atomix will also operate via several different tokens:

  • ACT will be minted to evidence the security taken over the RWA and will act as collateral for borrowing;
  • ATMX is the governance token of the protocol;
  • Stablecoins such as USDT or USDC will be used as liquidity.

Atomix is currently in a pre-launch phase. It is expected that the launch of an minimum viable product (MVP) will be complete in 2022.

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In Part III of this series, we will explore other decentralized financial instruments using real estate NFTs as collateral.

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This article is based on research conducted for Mettalex by Felix Bucsa and Albena Kostova.

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The Mettalex Research blog post series dives deeper into the latest innovations in Decentralized Finance. Apart from Part IPart III of the research on NFTs as collateral in DeFi, check also our analyses on DeFi 2.0 principles with focus on the MetaversePro implementation, on the novel tokenomics model Ve(3, 3), and on The 8 Hottest DeFi Trends to watch in 2022 with Part I exploring Regulations.

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