ParaSpace: NFTFi’s Innovative Gameplay, Effectively Utilizing NFT Assets

March 1, 2023 - Around 12 mins mins to read

Key Points:

Blur and OpenSea are racing to attract users.
ParaSpace has an advantage in terms of user experience.
The platform achieved the second-largest NFT lending platform without issuing tokens to motivate users.

It remains to be seen whether ParaSpace can become the number one NFT lending track like Blur’s counterattack against Opensea, but based on ParaSpace’s attitude of excellence in user experience alone, it does have Blur’s momentum to compete for the track leader. With the recent boom in NFT narratives, the battle for the top spot in the lending track will also be on the verge of breaking out.

ParaSpace: NFTFi's Innovative Gameplay, Effectively Utilizing NFT Assets

This month, the two most notable events in the NFT circle are the generous airdrop of Blur and the former big brother OpenSea announced a zero-fee event.

Blur has attracted the attention of the whole market by relying on the generous airdrop in the first season and the ongoing “trade mining” in the second season. OpenSea is not far behind and followed up with a zero-fee activity, hoping to win back the lost user.

Whether OpenSea’s move will make users who have already defected to Blur change their minds is still unknown, but there are three narratives that can be determined:

The mainstream NFT trading platform has significantly reduced the friction cost of NFT transactions, and users’ willingness to trade will increase, which will lead to an increase in market turnover. The improved liquidity will attract more external funds into NFT, which will help the whole NFT track to obtain dividends.
The NFT track is still an emerging market, after all. It is not impossible for a good team and a good project to counterattack in the first place. Therefore, in order to obtain a higher rate of return, some investors gradually set their sights on early-stage projects with rapidly growing business volume, looking for a second Blur.
OpenSea continues to use the old equity financing mechanism of the Web2 era, has not issued coins for a long time, and has been enjoying the first-mover advantage. Blur adopts the Web3 model. Airdropping tokens to early users and subsequent mining rewards are not only the best way to attract traffic but also achieve a win-win situation for users and the platform.

Facts have proved that projects with airdrop expectations have more potential than projects that have not issued coins or have issued coins for equity financing.

Here we can summarize three recent keywords, NFT sub-track, business volume surge, and airdrop expectations. The NFT lending platform Paraspace that this article will introduce happens to meet the above three points.

Introduction to ParaSpace

ParaSpace is an advanced NFT lending platform that can help users use NFT assets more effectively to obtain more income.

At present, ParaSpace has only been online for two months. Without issuing token incentives, it has attracted the second-highest TVL on the same track. Compared with other NFT loans, its products are more in line with the habits of old DeFi players, and the products are full of small details for the sake of users.

What problem does NFT lending solve?

Today, the market value of NFT held by encrypted users has reached tens of billions, but in most cases, these NFT assets are idle and capital inefficient.

In the absence of lending services, NFT users may be forced to sell their unique NFTs for liquidity.

Most of the existing loan solutions have limited support for different types of collateral and do not allow users to customize loan collateral according to their specific risk preferences. If you are used to lending platforms for ERC20 assets, such as AAVE, you will have a deep understanding of the NFT lending platform. There is still a huge room for optimization in terms of user experience.

The vision of ParaSpace is to provide users with the same user experience as interactive AAVE while doing NFT loans.

Basic Information

ParaSpace is co-incubated by Para Labs. Para Labs has previously launched Parallel Finance, a Polkadot-based composable and interoperable DAPP ecosystem, according to Parallel Finance’s GitHub codebase.

Last week, developers also merged more than 2,000 lines of code. It can be seen that the team is very concerned about past products and maintains efficient development.

On November 14, 2022, ParaSpace released the testnet on the Goerli Network and encouraged users to participate in the test through 3 separate activities of Traveler, Explorer, and Settler.

On December 11, 2022, ParaSpace announced that the mainnet had been successfully launched and had been running stably for 2 months.

Currently, the ParaSpace platform supports 12 blue-chip NFT assets, including BAYC, MAYC, BAKC, Swer Pass, CryptoPunks, Otherdeed, Azuki, Moonbirds, CloneX, Doodles, Meebits, and Pudgy Penguins.

And support APE, cAPE, ETH, DAI, WETH, stETH, USDC, and USDT a total of 8 ERC-20 assets, and innovatively support 12 groups of UNISWAP V3 LP (specified rate) composed of the above ERC20 as collateral.

Since ParaSpace went live in December last year, the interaction data has been impressive.

In terms of financing, ParaSpace investors have many star institutions such as Sequoia, Coinbase Ventures, and PolyChain. If you count the financing of Parallel Finance, which is the same team, it has sufficient funds and rich business resources.

In terms of security audits, ParaSpace has completed 9 audits from security companies such as Trial of Bits, Secure3, 0xQuit, Certik, and Veridise. Currently, there are two new rounds of audits hosted by Quantstamp and Slowmist, which are expected to be delivered in Q1 2023.

In addition, Code4rena hosted a bug bounty program worth $190,000 on November 23 last year, and the current bounty program is hosted by Immunefi.

In terms of project development capabilities, Paraspace has been advancing development. Especially since the launch of Ape Staking in December last year, the ParaSpace team has launched an innovative Peer-to-Pool mining service that is superior to competing products, reflecting its impressive development capabilities.

According to Github, in the past month, Paraspace-core’s code warehouse has 5 active developers, adding more than 7,000 lines of code.

ParaSpace Unique Mechanism

ParaSpace’s innovative mechanism is one of the key reasons why its TVL stands out, and this article will introduce 3 special mechanisms for ParaSpace mortgage lending.

Interest-earning assets as collateral

ParaSpace’s collateral covers a variety of interest-bearing tokens, including Uniswap V3 LP, AAVE’s aTokens and Compound’s cTokens.

Introducing interest-earning assets into the ranks of collateral, ParaSpace transformed into a cross-border product of NFTFi and DeFi, and brought benefits to many parties:

It will help improve the income of depositors on the platform and will also allow borrowers to pay less for loans, achieving greater capital efficiency.
Can increase the TVL of ParaSpace
Expand the application scenarios of native projects of interest-earning assets and promote the common prosperity of NFT-DeFi.

Uniswap V3 LP is an ERC-721 token, which is a certificate for users to provide liquidity in the Uniswap V3 pool. Those who hold this certificate can earn transaction fees in real-time, so it is regarded as an interest-bearing token.

If the user no longer wants to provide liquidity, he can immediately exchange the two tokens belonging to the user’s share in the corresponding transaction pair.

As an interest-bearing token, UniV3 LP is ideally suited as collateral for on-chain lending protocols such as ParaSpace. In ParaSpace, users can obtain credit lines by staking UniV3 LP tokens.

After having a credit line, users can use these credits to borrow NFT or other ERC20. The most important thing is that while enjoying the loan service, users can continue to earn LP handling fees.

Currently, ParaSpace supports the following trading pairs:

USDC/ETH – 0.05%, 0.3%
USDC/USDT- 0.01%
WBTC/USDC – 0.3%
ETH/USDT – 0.05%, 0.3%
WBTC/ETH – 0.05%, 0.3%
DAI/ETH – 0.05%, 0.3%
DAI/USDC – 0.01%
APE/ETH – 0.3%

It is not difficult to find that the basic tokens in these trading pairs are all ERC20 single coins supported by ParaSpace, so the DeFi leveraged mining function can also be realized on the ParaSpace platform. The team also specially launched a one-click leveraged mining function for this purpose. This move not only improves the utilization rate of funds within the platform but also enables single ERC20 deposit users to capture higher returns.

If you can understand the principle of Uni as collateral above, the following aTokens and cTokens will be much easier to understand.

aTokens and cTokens are the deposit certificates provided by Aave and Compound, respectively, on the platform, and the deposit interest is automatically included in the deposit certificate and accumulated. Therefore, if this is used as collateral in ParaSpace, users will receive both DeFi loan interest and NFT loan interest, double income.

An example is given in the documentation:

User A deposits 10,000 USDC into Aave and now holds 10,000 aUSDC, charging 5% deposit interest.

The same user sees that if they deposit 10,000 aUSDC into the protocol, they can earn another 5% interest on ParaSpace, ending up with a total yield of 10.25% on their USDC. This is achieved by user B borrowing aUSDC and paying interest.

User B wants to borrow 10,000 USDC with their ERC-721 assets. However, they see that the borrowing rate on USDC is 20%, but the borrowing rate on aUSDC is 5%.

As long as the net borrowing rate on aUSDC is below 20%, it is worth borrowing 10,000 aUSDC and redeeming it for USDC immediately.

It can be seen that ParaSpace’s method of introducing external liquidity is ingenious, which can not only increase the income of borrowers, but also help stabilize the interest rate of the whole market.

Increase Rare NFT Valuation (Not Live)

ParaSpace’s marketplace allows NFT holders to calculate how much instant liquidity they can get at most based on the floor value of the NFT provided through its Peer 2 Pool lending model.

P2P Pool lending has significant advantages, but at the same time, it can also be realized that all NFTs in the pool based on the Pool model have the same value, so some NFTs with rare attributes and high valuations sacrifice certain capital efficiency, and rare NFT holders also will lose motivation to participate.

At present, the ParaSpace team is designing a price multiplier for each rare attribute to provide a value-added premium beyond the floor price of a specific NFT’s collateral, thereby attracting rare NFT holders to deposit, improving capital efficiency, and further pushing up ParaSpace’s TVL increase.

Mortgage while enjoying blue chip NFT benefits

While ensuring the efficiency of users’ funds, ParaSpace also allows users who mortgage NFT to obtain airdrops and other benefits.

Because of the uniqueness of NFTs, ParaSpace’s NFT collateral has two modes to prevent rare NFTs from being borrowed:

It is only used as collateral and will not be borrowed by others. Users who choose this setting can lend certain assets, and as long as they return the assets in the future, they can redeem the NFT they deposited intact.
It can be used as both collateral and loanable goods, and is suitable for NFTs whose attributes are mediocre and close to the floor price. When redeeming, the user will be randomly returned to the pool with an NFT of the same series. This is contrary to the logic of traditional mortgage loans, but the advantage is that you can enjoy the profits of lending NFT.

In the past, if a blue-chip NFT announced an airdrop, the user who mortgaged the NFT would need to interact multiple times and give up capital efficiency before redeeming the collateral to his wallet to receive the airdrop.

ParaSpace’s Flash-Claim technology no longer requires users to make complicated operations between capital efficiency and obtaining their NFT benefits, and can directly complete the airdrop claim of collateral with one click. (Note: Only the first deposit option in the previous paragraph can be guaranteed to get the airdrop).

ParaSpace will support some of the most popular airdrops by default, and for other airdrops, users can contact the team via Discord for additional support.

In addition to receiving airdrops, ParaSpace also supports stakers to verify ownership of blue-chip NFTs.

Due to the cooperation between ParaSpace and tokenproof, it is guaranteed that users who deposit NFT into ParaSpace can always enjoy the benefits of NFT fast verification.

ParaSpace will send an nToken issued by token proof to the mortgage user. This ERC-721 token with metadata corresponds to the NFT mortgaged by the user and represents the rights and interests of the original NFT.

Conclusion

ParaSpace achieved the second-largest NFT lending platform without issuing tokens to motivate users, which is inseparable from an in-depth understanding of NFT lending.

From the introduction of interest-earning assets into collateral and the research on the valuation of NFT with rare attributes, it can be seen that this team is well-versed in Web3 economics. I am looking forward to how the team will design ParaSpace’s own token model.

ParaSpace has worked hard on security, has completed 9 audits, and is currently advancing two rounds of audits. However, despite this, NFT lending products are an emerging track, and innovation also represents a security challenge, and users still need to control risks.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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