Problem to solve

A market with the risk of illiquidity

Problem

The new business model based on the sale of NFTs is a trend that is becoming increasingly popular and has immense growth prospects. However, the standard NFT market model often applies selling principles that rely on the same asset exchanges, creating several difficulties for both those who need to sell the asset and those who want to buy it. In particular, those who suffer most from this mechanism are the "edge cases": cheap NFTs crowd the markets with near-zero volume, and the rarest and most sought-after NFTs are at very high price levels, often trading very rarely, if at all. This clearly implies that holders of both common and high-end NFTs may find it difficult to sell at a price they consider fair, and many buyers may not be interested in a particular NFT at the price set by the sellers. Many NFT holders also face the risk of significant losses after minting, particularly in a bear market, due to the inherent illiquidity of the NFT market. The issue of the lack of liquidity is a serious problem. In fact, the classical liquidity model requires a 1-to-1 price match between buyer and seller, which locks funds and NFTs into the "Bid/Ask" scheme. Inevitably, one side of this transaction must concede to the other, resulting in the buyer paying more than he intended or the seller taking a lower profit or even a loss to sell his NFT. These bottlenecks exist in almost every MarketPlace today, and the most serious consequence is that the buyer often finds himself unable to sell his asset at a price that is at least affordable.

Solution

AerariumChain is focused to create a class of NFT as a standard to be exchanged on different platforms and marketplaces.

To help the initial offering, AerariumChain is launching a Marketplace that wants to provide a reference solution for other applications, using tools that are already present in the crypto world and applying them in new circumstances. As mentioned earlier the main problem is often the lack of liquidity in the NFT marketplace. AerariumChain has developed a system with the aim to enable the continuous presence of liquidity and thus ensure that NFTMicro can be sold at any time. The liquidity pool model will be applied for the first time to fractioned NFTs related to physical artwork masterpieces. The decision to adopt a decentralized solution, allows multiple platforms (other marketplaces, but also VR and AR applications) to interact directly with the liquidity pool without a centralized controller.

There are several models of AMM and PMM applied to liquidity pools, and multiple liquidity providers are proposing new models and solutions.

In the present scenario, the AerariumChain team is studying the evolution of the models, relying in the first phase on the collaboration with Pact.

Liquidity Pool model applied

Liquidity Pool model applied Pact offers two types of liquidity pools, CPMM and SIMM. For starters, AerariumChain decided to use the Constant Product Market Maker (CPMM). With the Constant Product Market Maker (CPMM) feature, pairs act as automated market makers, ready to accept one token for the other as long as the "constant product" formula is preserved. This formula is expressed as x * y = k and states that trades must not change the product (k) of a pair's reserve balances (x and y).

In this way, the price varies according to the amount of reserves in the liquidity pool. AEC will create pools containing NFTMicro and USDC. Clearly, not being able to vary the price of USDC (always constant and equal to one dollar) what will vary will be the price of a single NFTMicro. As can be deduced from the formula: the greater the liquidity present in the pool, the greater the price stability.

For this reason, AEC will incentivize those who want to finance museums more to be liquidity providers and therefore to earn pool fees. In this first initial phase, once the liquidity pool has started, the price will be set by the pool itself, as there is not yet an external market. Therefore, the opportunity to arbitrage will not initially be created. The initial price will be determined by the USDC liquidity provided by AEC itself and the number of NFTMicros added to the pool.

Possible developments of the liquidity pool model

In addition to the classic Uniswap model, now known by all, of the CPMM, AEC is analyzing all the AMM models for possible future developments or even inventing a new model in addition to the already existing ones: Constant Mean Market Makers (CMMM), Constant Sum Market Makers (CSMM), Hybrid Function Market Makers (HFMM), Dynamic Automated Market Makers (DAMM). Furthermore, a possible development of the Crowdpooling mechanism is arousing much curiosity.