Can COSO liquidity protocols and cross-chain protocols, solve the liquidity challenge?
Two aspects of the crypto space are growing in popularity - NFT and DeFi.
NFT, or non-homogenized tokens, are a class of crypto assets that cannot be copied or replaced. But while the market is hot, it also raises the question of whether NFT is an investment or a digital collector's item. It is clear from the original intent of NFT that the issuer of NFT is inclined to collect because of the carrier, which generates a late premium, and relatively speaking, the investment value will be elongated over time, even if NFT coins are issued, it will not put too much pressure on the project side, the reality is that we clearly consider NFT as an investment in many unspoken ways. Twitter is flooded with all kinds of questions about Twitter is full of questions and discussions about NFT, such as how much of my crypto portfolio should be NFT, and Investopedia publishing articles like "The Pros and Cons of Investing in NFT". We cheer when our NFTs go up in value, and when they don't, most holders feel they have the right to put pressure on the project founders.
On one hand there is the pressure from the project side to
On the other hand, there is the need for investors to liquidate
Is there, in fact, a way to balance the two?
The answer might be - DeFi
DeFi, or decentralized finance, refers to a blockchain platform that provides financial products and services to cryptocurrency investors without the oversight of banks or financial institutions. Everyone is already familiar with what DeFi should be, but how can NFT, as an inseparable vehicle, participate in it? The answer is NFT lending. A valuable NFT can be used as collateral to obtain a loan, just like a house, car, boat or stock. cososwap merges DeFi with NFT, opening up a whole new economic model for this emerging crypto asset class.
This new economic model, in part, also unlocks liquidity. What is liquidity? Liquidity refers to the ease with which an asset can be converted into cash without causing a dramatic change in the price of the asset. Liquidity involves a trade-off between the price at which an asset can be sold and the speed at which it can be sold. Obviously, cash is the most liquid asset you can own. In contrast, less liquid assets are not as easy to convert to cash. Examples include large assets such as factories, property and equipment. So, the question again is, why is NFT illiquid? What are the main reasons?
First: Consumers need to spend more time understanding the asset before making a purchase decision.
Second: Most mainstream NFT types are expensive and have low access rates, which leads to a small user base.
Third: Most experiments with NFTs to date have focused on the art and collectibles categories.
Fourth: lower liquidity allows for trading, which means you cannot easily swap one asset with another, leading to larger slippage, which leads to severe price bias.
What is COSOSWAP doing about liquidity while opening up a new economic model by merging DeFi with NFT?
Lease agreements.
Convergence EIP2615 , which is commonly used for NFT leasing agreements. This agreement separates the ownership and use of NFTs, allowing users to lease their own NFTs or to mortgage them by pledging them. In order to implement a trustless lease of NFTs with ERC721, it is necessary to deposit funds as security. This is to prevent malicious behavior of the lender, because once ownership is transferred, it is impossible to regain it. With this lease agreement, the deposit is no longer required because the lease agreement itself supports the lease and tenant functions. In addition, an escrow of ownership is not required to take out a mortgage. This is to prevent the potential risk of default on the mortgage. However, using ERC721 as collateral for security undermines the utility of NFT. Since most NFT applications provide services to the NFT's titular owner, the NFT is essentially unavailable under escrow. With ERC2615, it is possible to use them while collateralizing NFTs, which makes NFTs more efficient.
Liquidity Agreements
COSO unlocks scenarios where NFTs can be used to provide liquidity in finance. The liquidity of NFTs is enhanced by pledging them to generate easily liquid ERC20 tokens. In other words, a collection of NFTs will be collateralized and fragmented to mint a corresponding number of ERC20 tokens, which in turn will participate in liquidity mining, trading, etc.
Cross-chain protocols
Most of the current NFTs are based on the ERC721 standard, and the scenario is limited to Ether. The cross-chain protocols of NFT can provide interoperability between NFT of the main chain and other main chains. For example, DNFT, a cross-chain decentralized NFT protocol built on Polka Substrate, and COSO will also provide the underlying cross-chain infrastructure services for various current NFTs.