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Unicly Litepaper - v2
Version 2.0 - March 22nd, 2022
Unicly is a permissionless, community-governed protocol to combine, fractionalize, and trade NFTs. Built by NFT collectors and DeFi enthusiasts, the protocol incentivizes NFT liquidity and provides a seamless trading experience for NFT assets by bringing AMMs and yield farming into the world of NFTs.
Buying NFTs is quite a laborious process. Fungible tokens may have thousands of buyers and sellers, but every NFT transaction depends on matching a single buyer and a single seller, which leads to low liquidity. In addition, many users are being priced out of some of the most desirable items, leading to more concentrated ownership and pent-up demand. Furthermore, it is difficult for an average investor to build a large, diverse portfolio of NFTs, which makes investing in them inherently riskier. As a result, the NFT space is experiencing accessibility issues.
Fractionalization allows more people to trade NFTs at lower price points, enabling more of us to have ownership of even the most coveted NFTs. It even allows casual investors to buy small amounts in NFT projects that they like as if they were liquid tokens.
Unicly will attract and incentivize all stakeholders in the wider blockchain ecosystem to participate in the NFT ecosystem. Just like how projects launch tokens on Uniswap, collectors and/or creators will be able to launch exciting NFT collections through Unicly, and benefit from better price discovery and more accessibility. Traders and casual investors will experience higher liquidity on a familiar AMM model. Meanwhile, yield farmers will be incentivized to earn rewards by providing liquidity.
There have been a couple early efforts to fractionalize NFTs. The following are the main issues that could be identified:
- Sharding single NFTs instead of collections. The market cap for a single NFT has a ceiling. However, by fractionalizing any collection of NFTs across multiple smart contracts, we can create fractionalized tokens based on NFT pools that hold significantly more value.
- Un-fractionalization. Fractionalizing NFTs is just one part of the solution. Un-fractionalizing those NFTs and determining their rightful owners is challenging in its own right. An example of a prior solution is implementing a carry-on clause, where people can offer to buy-out an NFT. The issue with this model is that unless the shard holders have enough funds to counterbid, they are forced to sell to the bidder. Another example is random distribution of the NFTs to the shard holders. However, given that each NFT is unique, where even a difference in mint number can add or remove a digit to the valuation of an NFT, random distribution may not be ideal.
The Unicly protocol improves upon the above issues through the following key attributes:
- Multiple NFTs (ERC-721 and/or ERC-1155s) can be put in vaults and fractionalized into fungible ERC-20 tokens.
- NFTs within vaults can be un-fractionalized individually. This happens when someone bids above the "trigger price", which is set by the vault creator. When a trigger price is bid, it kicks off an auction.
- Every NFT within a sharded collection is treated as a unique, irreplaceable item.
- Collectors can bid for specific NFTs rather than entire collections.
- All fractions are treated equally.
- When an NFT is auctioned off, the proceeds (in ETH) go back into the vault. Fraction holders are entitled their pro rata shares of these proceeds.
- Fractions are burnable, and holders can exit any time with their cut of the ETH in the vault. Nobody can be held hostage.,
- Contributors of the best NFT collections are incentivized through whitelisting, which allows them to earn the UNIC token in rewards.
The following sections will delve deeper into how these attributes are implemented.
Note that the main changes since v1 are as follows:
- NFTs within vaults can be un-fractionalized individually. This happens when someone bids above the "trigger price", which is set by the vault creator. When a trigger price is bid, it kicks off an auction.
- When an NFT is auctioned off, the proceeds (in ETH) go back into the vault. Fraction holders are entitled their pro rata shares of these proceeds.
- Fractions are burnable, and holders can exit any time with their cut of the ETH in the vault. Nobody can be held hostage. For example, if you own 10% of the vault’s fractions, you can burn them at any time to claim 10% of the ETH in the vault.
With the above changes, we believe that we have solved the main problem of fractionalization: Fractions can truly reflect the value of the NFTs within the vault. You can fairly fractionalize and unfractionalize NFTs of different types and rarities.
We see several places where Unicly V2 can play a big role in the NFT ecosystem:
- DAO tooling: Unicly V2 vaults will be a perfect way for DAOs to have a permissionless way of managing their NFT assets, and share the upside with each of their members.
- NFT launches: Unsold/unminted NFTs for new launches could be added into a vault, and fractions could be given to all holders (or kept in a treasury) for future use.
- Financial NFTs: Unicly V2 is the best way to provide liquid markets for all sorts of financial NFTs.
- Integrations: Unicly V2 could be used as the backend technology for many NFT protocols (especially for lending/borrowing).
Anyone with NFTs can create their own fractions. At its core, a fraction is an ERC-20 token that represents a collection or bundle of NFTs. It allows users to deposit and lock any number of ERC-721 and/or ERC-1155 NFTs into the smart contract.
The vault creator starts with all fractions when they first create the vault. They can add more NFTs at any time, and customize the vault so that others can add any or specific NFTs as well. A small fee (adjustable by the community), in fractions, is taken into the treasury whenever fractions are issued.
Once the creator of the fraction adds liquidity for it, anyone has the ability to trade it, similar to how tokens can be distributed once liquidity is provided on Uniswap. Adding liquidity is not required though.
Bidding
Vault creators set the auction trigger price for each NFT within their vault. Whenever someone bids the trigger price, an auction for that NFT kicks off.
All NFTs on auction have a separate page where users can bid for them, similar to any marketplace. Any NFT with a trigger price lower than its fair market value will likely get triggered into an auction by traders and arbitragers.
If someone outbids the current highest bidder, the highest bidder may unbid and bid higher immediately. Auctions are set for 1 day (this number can be changed by the community), but it can continue longer if there are higher bids in the last minutes of the auction.
The winner of the auction can claim his/her NFT immediately. The proceeds (in ETH) are sent to the vault. A small fee is taken for each NFT sale and sent to the Unicly treasury.
The trigger price is based on the bid amount disregarding fees.
To prevent auction sniping, if a bid is made within the last 5 minutes ("auction extension margin"), the auction will be set to end 5 minutes after that bid is placed. The auction extension margin may be modified by the protocol if it is determined not to be the ideal amount of time.
Fraction governance & Un-fractionalization
Fraction holders can claim their cut of the proceeds of the NFT sales at any time. Once they redeem, the fractions are burned, and they no longer have the rights to claim ETH of any future sales from the vault. This incentivizes fraction holders to not burn unless:
- 1.The market cap of the fractions on the DEX is trading below the vault's ETH holdings, which allows for an easy arbitrage opportunity.
- 2.They believe that the NFTs remaining in the vault have no value
Essentially, the burnAndRedeem function is a rage quit mechanism. It really should not be used unless DAOs need it to redeem some ETH in the vault with their treasury tokens (without affecting market price), which can be used to re-invest in NFTs and increase value for token holders.
Holding fractions therefore gives users direct economic upside of the NFTs in the vault, same as if they were holding the NFTs themselves. They do not, however, give ownership of the NFTs themselves. Holding fractions does not mean you will be able to redeem the NFTs - you would need to bid on them directly.
Vault creators have the option to allow for proxy transactions. This means that fraction holders can vote to trigger transactions from the vault address. This allows for:
- 1.The vault address to claim airdrops that are given to the NFTs within the vault.
- 2.Vaults to have custom, flexible governance with fraction holders, allowing for more intricate DAO treasury management. For example, fraction holders could vote to withdraw some of the ETH in the vault to purchase another NFT to add to the vault.
Hostage scenario
Vault creators on Unicly V2 are given the ability to set trigger prices for each NFT in the vault. This makes it possible for them to set extremely high trigger prices, making it impossible for any auction to occur, keeping fraction holders hostage.
In order to mitigate this, the Unicly DAO has the ability to take over this ability and set the trigger prices determined by the DAO. This will only happen if the vault creator is a bad actor.
UnicSwap is a fork of UniswapV2. Therefore, it uses ERC-20 LP (liquidity provider) tokens, which can be staked directly into UnicFarm for farming.
Just like Uniswap and Sushiswap, anybody will be able to add new pairs, provide liquidity, and swap between pairs.
Unicly’s fork of the classic AMM model will provide incentivized on-chain liquidity for NFTs (in the form of uTokens), while keeping the same swap & pool UI/UX that users are now very familiar with.
0.25% of all trading volume on UnicSwap is taken in fees and distributed to liquidity providers for the swap pair. An additional 0.05% of all trading volume on UnicSwap is collected in fees and added to the treasury.
LP token holders of whitelisted pools can stake their LP tokens on the Farm in order to earn UNIC. This is similar to Sushiswap's farming mechanism. In order to acquire these LP tokens, one must provide liquidity for whitelisted pools on UnicSwap.
Unicly will be fully governed by the community via Snapshot voting. The protocol will mainly need the UNIC community to vote for new uToken pairs to whitelist.
Unicly had a true fair launch. There will be no pre-mining and no pre-sale investors. 90% of UNIC tokens will only be minted via liquidity mining and 10% will progressively be allocated to the development team as they get minted over time. On day 1, 0xLeia will start with 1 token in order to vote in the first set of whitelisted pools that will enable liquidity mining. As soon as more UNIC is minted, the community will have the power to govern the platform themselves.
UNIC tokens may also be able to trade them in for their portion of the Unicly treasury if the community decides to allow holders to do so.
UNIC token distribution
Each month, the mint rate of UNIC tokens will decrease by 5%, starting at a monthly mint amount of 50,000 UNIC. Therefore, the supply will never reach 1M UNIC.
The emission rates further decreased as the protocol geared towards v2 launch.
UNIC supply over time
Last modified 1yr ago