Add liquidity to a wrapped Doodle vault to provide immediate access to liquidity for sellers

The idea

Provide $250k in liquidity to NFTx or NFT20 to allow Doodle sellers to immediately sell for the market price without having to list on OpenSea.

What: wrapped NFT vaults like NFTx or NFT20 exist to provide liquidity to NFT holders. The value proposition is simple: you can sell a Doodle NFT immediately into the vault and get a good rate if there’s enough liquidity.

This rate will typically be the floor price of a Doodle with minor fluctuations. Currently, the rate to sell a Doodle into NFTx is very poor because there is no liquidity. This proposal adds liquidity to make selling into these vaults a desirable method of liquidating Doodles rather than listing at or below floor, depressing the market, and waiting for a buyer.

Additional uses are:

  1. You can also buy Doodles from the vault that have been added
  2. You can swap a Doodle for another Doodle in the vault 1:1 (NFT20)
  3. You can provide Doodle liquidity to earn trading fees

To achieve this we will need $250k and

  1. Buy $125k of floor Doodles
  2. Provide floor Doodles & $125k in ETH liquidity to a vault

Rationale/Why: This mitigates some downward pressure on the marketplace. Collectors now have access to immediate liquidity for floor Doodles.

Level of effort: We can ship in 1 day after passing

Timeline: If this got approved we can ship it in a single day

Budget: Duffel bags

24 Likes

Is this only a one-time investment or will we think about adding a portion of the income from the community treasury on e.g. a monthly basis so we can offer this feature in the future as well?

It would be a one-time thing. The money should not deplete because there will be buyers/sellers/traders of this $Doodle vault token that will arbitrage price discrepancies.

Example

If a user sold 10 NFTs into the pool for immediate ETH, the price of the pool’s token could be less than the current floor price of Doodles. Traders would see this as an arbitrage opportunity to buy up the pool’s token restoring the price.

7 Likes

I see. And what would be done with the $125k floor doodles that would be bought? Put into the vault so people can already swap doodles or is there another plan?

The ($125k worth of) Doodles would be deposited into the vault in exchange for this $Doodle vault token. That $Doodle vault token is then locked into a liquidity pool indefinitely along with $125k in ETH.

I forgot to mention that Doodlebank will also earn trading fees for every swap that happens.

Risk is impermanent loss but I won’t get into that here. Anyone is free to google it. In comparison to the gains it seems acceptable.

6 Likes

I need someone to figure out the liquidity needed to minimize the price impact of a Doodle:ETH vault trade. I ballparked $250k based on my experience but there’s no solid math behind it.

The ask: Achieve a <5% price impact on selling a Doodle into the vault. This is commensurate to the royalty on Opensea.

How much liquidity do we really need to achieve that ^^^

I think this is a good idea, encouraging the use of wrapped nft vaults is a great way to limit fluctuations in the market and can even reap a profit for the community wallet long term.

2 Likes

I wish I could help with the liquidity calculation but I have no experience in that area.

I just wanted to hop in and mention I think this is a great idea. This isn’t something I’ve personally seen done before but the idea is great and I think really useful for long term holders / multiple doodle holders. Excited to see this as a conversation topic.

tldr: concerned that the actual pricing system on NFTX works against the objective of providing decent priced liquidity exits + remove downward pressure on OS.

Sharing what I’ve learnt from experimenting with NFTX.io for the past week or so. Not sure about the other platform. I could be wrong. This is just my casual (and profitable) observation.

Limitations
These things are algorithimically controlled by NFTX using Opensea as the floor price oracle. It seems to take some form of exponential moving average (lagging).

  1. Sell to vault price
  2. Buy from vault price
  3. B/S Spread : about 20 to 30%
  4. doodle vault token at mid-point of B/S

Oracle refresh times: seems to be daily and triggered by sale and purchase from the vault. Doubly slow price feed = arbitrage.

pros:
Good for farming returns. So Doodlesbank making money of doodles vault holdings should be a profitable venture inspite of IL.

con 1:
Because of the delay in price updates, in periods of volatility or sudden downswings, there are situations where the price of floor doods on NFTX.io can be substantially lower (20 to 30%) than the floor price on OS. Arb strategy: Buy NFTX, Sell OS, resulting in lower OS floor prices. The arbitrage doesn’t last long due to the price update upon purchase, but one can purchase multiple doods at the same time. The arbitrage is greater when doodlers deposit non-floors into the vault, increasing the potential spread for arbitrageurs.

con 2:
The spread is defined by the system. Increase in liquidity would reduce slippage and price impact but may not necessarily improve the selling price. I didn’t find this in the docs and I have not analysed the liquidity provided in the other vaults.

Unless the floor price can be determined by the vault configurator (it can’t), being able to provide a seller-of-best-resort venue for floors seems to be a challenge.

Perhaps Nft20 overcomes these challenges or NFTX might fix it’s algorithms and refresh rates. but I have not experimented with that yet.

Alternative: users who wish to sell at floor may indicate in the trading channel during select office hours. doodles LLC staff will then manually transfer and purchase from the user at discord published price. doodles then deposits into NFTX / NFT20 vault to earn a return via staking.

This doesn’t solve the price gap and arbitrage between NFTX and OS, but at least controls the selling pressure from genuine sellers who need liquidity.

8 Likes

Against this OR wish for a Reconsideration of capital Allocation:

feedback is that this will cost ETH from treasury to add liquidity to the pool, we need to consider if its worth the trade off and if the impact and reward it would have is not worth the investment.
I think number 1 priority should be adding an income stream to treasury vs worrying about our floor, floor will get undercut anyway even with a NFTX vault, most people don’t live outside of opensea.
Also the timing of this proposal may be too soon

Some Points:

  • this proposal will remove the 2.5% royalty from opensea secondary as income for treasury
  • secondary volume is hot right now and will remain for a while, we should take full advantage of that for maximum income
  • secondary volume will die down when distribution is more spread and holders are tight it could be best to execute this then as opensea secondary commissions will ultimately only add negligible amounts more at that stage.
  • Free market floor price discovery is healthy for a project.

Last words:
We need to consider the timing of this proposal.
We need to carefully consider how much liquidity we will be taking out of treasury for this and not deplete treasury too quick.
Priority should be increasing treasury income.
650E is not alot of money, we have to se it wisely to bootstrap That 650E towards adding a income generating revenue stream to the Treasury so we can keep building.

13 Likes

would this bring the the transacted volume in NFT tools and OS stats? In this way, loads of people will be trading off doodles here instead of open market?

Or is this only accessible to doodle’s hodler?

Hi all,

Nick from NFTX here, we’re really excited to see interest in this vault from the Doodles community! I wanted to address some understandable concerns from the replies above as well as highlight some of the benefits on top of @Poopie 's OP.

First, to address the concerns:

NFTX doesn’t use a price oracle but instead the tokenized DOODLE ERC20s are freely traded on Sushi and price discovery happens organically. Prices are always up to date.

To take a step back, when you deposit into NFTX your Doodle is fractionalized into 1 DOODLE ERC20 token that has all the benefits of fungibility (instant liquidity and DeFi composability for example).

That DOODLE token can then be paired with ETH on Sushi to allow others to trade on their AMM. (if unfamiliar with AMMs, you can read more about them on EthHub).

The price itself is determined by the market (buyers and sellers of the DOODLE/ETH Sushi pool).

The spread is high because liquidity is low. With more liquidity comes tighter spreads. The Avastar vault, for example, has a buy/sell spread of 0.138 / 0.123.

On Poopie’s OP about swapping, we are launching 1:1 swapping (with a swap fee that goes to LPs) on NFTX this Friday. This will allow users to instantly trade up to what they might consider to be a higher floor NFT.

As for the benefits:

  • Instant liquidity for buyers, sellers and swappers.

  • 100% of trading fees go to liquidity providers, and with this proposal it would be the project itself that LPs (and takes rewards). Community members can then also join and share in those rewards.

  • Price discovery, buy back mechanisms, a CoinGecko page (if you like) and all the other perks of having an ERC20 represent the floor value of your collection.

  • Liquid projects can become composable with DeFi. We think that combining NFTs and DeFi leads to incredible new products that benefit all stakeholders. PUNK, for example, was recently added to the Rari Fuse Pool which allows people to earn interest or borrow against CryptoPunks.

  • In the next couple of months we will enable “single-sided staking” which will allow users to stake their DOODLE without any need to pair with ETH for liquidity and earn 20% of the rewards.

  • The Doods will get their own Dune Analytics dashboard for the vault with historical prices/volumes/fees etc.

As a case study, Purrnelopes Country Club have done something similar with the project bootstrapping large amounts of liquidity.

As a result, they have earned over 100 NFTs in fees from the activity in the vault in the last few months and have created over $1M in liquidity for instant buys and sells. All data can be seen here: Dune Analytics

Really love to see this proposal pop up and will answer any questions you guys have.

4 Likes

I like this idea alot, i think timing is key. providing instant liquidity to holders without them having to accept “bot” offers is good for the market aswell as the holders and Doodles as a whole.

Despite the fact that I like the idea, I do think it shouldnt be as flexible as portrayed. There could be a list of requirements to apply for liquidity and analyze every request by this criteria. This would help the project have an impact in community rather than raising floor price. If a doodle is in need and fits criteria there should be an option. Additionally I feel like this liquidity should come from succesfull projects

Thanks for sharing your experience, very informative.

I like this alternative, maybe we could even create our own version of a buy back mechanism through a dApp, to mitigate some of the issues you mentioned with automated LPs.

Possible mechanisms could be:

  • Start the buyback pool with X amount of dollars
  • Limit the buybacks to N per day/hour …
  • Seller need to have been holding a doddle for at least N days to qualify for buyback
  • Buyback price is the average OS floor of the past 24h
  • All bought back assets are listed back on OS at floor + 10%
  • Liquidity from OS sales is added back to the buyback pool
  • The buyback process would happen on OS via a private listing (via an API call from a dApp) so royalties will be paid

This obviously would need to be thought out more thoroughly to iron out the details. The main goal being, not to manipulate the floor but to provide liquidity for holder that need it without hurting the project.

1 Like

Yes please, I like this.

Sounds great :slight_smile: i vote for NFTX cos i like alex gaussman/kingkaidev in i think their team is excellent.

1 Like

FYI: Today, in the support chat for NFTx, I mentioned the briefly the idea of enabling projects to manage their own liquidity pool and also the option to include a fixed price buy back feature, up to a certain budget.

The team seems open to discussing and potentially customizing something that suits doodles. It’s worth a chat with them to describe your use case to see if it’s something that can be supported on their end so that doodles doesn’t have to build anything.

1 Like

I think this comment resonates with me the most of all replies here. Income generating revenue steam is KEY for the health of the treasury. I emplore you to take a look at my latest proposal where I begin to disucss how we can build the treasury for a healthy future.

1 Like

Hey Mr_B, Nick from NFTX here.

Our vaults do provide an income generating revenue stream both for the project and for community members that want to LP alongside the project.

By having a liquid ERC20 representation of the Doodle floor price there are a number of other benefits that come about beyond just instant liquidity:

  • DOODLE becomes composable. For instance, it could be used as an asset to borrow against in a protocol like Rari.
  • DOODLE could be used in rewards for community members, effectively paying contributors in fractions of a Doodles NFT.
  • Treasury could buyback and burn/build to support the floor and to build a larger treasury of DOODLE.

Effectively, Doodles earns royalties with benefits by being a leading LP in the NFTX vault.

2 Likes