GUMBALL PROTOCOL: SWAPPING, BORROWING, AND LENDING OFF NFTs MADE EASY
If Stablecoins like USDT, USDC, and BUSD were created to facilitate liquidity across all tokens on various blockchains, the GumBall Protocol — GBT — tokens could be likened to the first real stablecoin in the entire NFT space.
As a multi-purpose deep liquidity NFT & DeFi trading hub built on the Ethereum blockchain, GumBall Protocol introduces an NFT-fi ecosystem that utilizes an ERC-compatible token — known as GBT — to help NFT holders get instant liquidity on any NFT traded on the platform, they wish to buy or sell.
Simply put, GumBall Protocol is a novel approach to creating instant liquid NFTs for prospective and existing Web3 enthusiasts.
The main issue with NFTs is a lack of liquidity. Exiting an NFT position generally requires a direct sale to a buyer on platforms like OpenSea and LooksRare, making it difficult to assign a true market value to the item — the type of value that would allow an NFT to be used as collateral, for example. Current DeFi ecosystems in place do not function well with non-liquid assets like NFTs.
- Hampton, Creative Directors at Gumball Protocol
Gumball Protocol aims to bring the power of DeFi to NFTs by utilizing native liquidity and creating an incentive-driven ecosystem on which NFTs can be used.
HOW DOES IT WORK?
When an NFT collection is launched on the GumBall Protocol, a parallel version of that NFT is added to the protocol known as the Gumball NFT, or gNFT for short. More so, a corresponding amount of GBT tokens are also created for that collection such that every gNFT minted is done using the corresponding GBT token for that collection.
Each collection on GumBall Protocol will have its own unique GBT token. Say a Bored Ape Yacht Club — BAYC — collection, for instance, will have to be converted to gBAYC with its own specific GBT tokens, an Azuki collection converted to gAzuki with its corresponding GBT tokens, a Digi collection changed into a gDigi NFT alongside matching GBTs, a Doodle collection replaced with gDoodles and corresponding GBT tokens created, and on and on you go.
P.S.: Keep in mind that the above-listed collections; BAYC, Azuki, Digi, and Doodle; are used for exemplary purposes as the platform only support collections minted on the bonding curve like NftGumbo, cats_liquid, BullionPuck, twinjas_nft, mars_refugee, and Mysties_NFT.
Where all variance of the GBT tokens on the Gumball Protocol is backed by a liquid asset, such as ETH, and controlled by a bonding curve. Through this asset-backing mechanism, every gNFT will have a true market at any given time, hence, can be sold instantly for the current market price of the collection.
The idea that every gNFT can have a true market value at all times means the price of GBT will always reflect a collections’ floor price that is currently available to exit a position.
These tokens are specific to the collection and are sold on a bonding curve, with the liquidity from these sales staying in the bonding curves to act as liquidity for the collection holders to utilize. This allows users to easily swap in and out of GumBall NFT positions instantly, stake their NFTs, borrow against them, and much more.
Given swapping on the platform is completed using a bonding curve, the price of GBT tokens varies per interaction.
In simple terms, when you try to swap ETH for some GBT for the first time the prices are always going to be cheaper the first time than the next, and it’ll gradually go way up to infinity as users continue to purchase the Gumball tokens from the GBT vending machine.
Since it’s a bonding curve, as the price approaches infinity, users on the Gumball Protocol will never be able to buy the last GBT tokens.
Nonetheless, the price will always go up as people continue to buy more and more of these GBT tokens.
So, for every time you swap, redeem, or reverse-swap between GBT tokens and ETH, a small portion of the transaction (say 2.5%) is charged by the Gumball Protocol as a transaction fee.
From the transaction fee generated (which defaults to 2.5%) from each transaction, 1% is allocated to the creator of the NFT collection. Off the residue, another 0.5% will be in the custody of the Gumball team, leaving off an extra 1% yet to be allocated from the original 2.5% generated from as the transaction fee, which we would get back to in a moment.
Now, remember how an NFT collection is converted to a gNFT by simply sticking it into the Gumball Machine?
In order to get your hands on one of your favorite gNFT collections you would have to trade your newly purchased GBT (which should of course be specific to the gNFT you are looking to purchase) for some of those.
One cool thing about purchasing an NFT (or a gNFT as in the case of the Gumball Protocol) is that users could either choose to buy a new NFT or re-purchase one that has been returned/redeemed already.
More on that in a few…
Now, once purchased, users can choose to sell their NFTs on OpenSea, or use them as a PFP on Twitter or any other NFT-compatible platform, just like they would any other NFT they own. In this case, all revenue generated from the sale of a user’s NFT would be given to Gumball Protocol by OpenSea to be redistributed to the appropriate stakeholders involved.
Now, this is where it starts to get even more interesting.
Let’s say you have an NFT and want to get out but don’t want to sell it on OpenSea, you can decide to return the said NFT back to the Gumball Machine.
However, to do so, just like every other transaction on the Gumball Protocol, you will have to be charged a fee of 0.1% (of which 0.05 will be burned thereby reducing the total supply of GBT tokens over time.
Accordingly, the protocol adjusts the bonding curve to take into account to avoid ETHs stuck inside the Gumball machine, raising the floor price per GBT, hence, causing every holder of GBT tokens to experience an uptick in value that they can redeem.
In a nutshell, for every re-sale initiated on the Gumball Protocol, there is a corresponding percentage of GBT tokens to be burnt, thereby causing an increase in the overall value of every GBT token ever minted.
Another aspect of the Gumball Protocol that I find particularly interesting is the idea of staking xGBT tokens.
Should you not intend to deal or hold an NFT, yet have a gut feeling that NFT might have a lot of prospects; maybe you envisage that there might be a lot of trading actions on that NFT; you can take the GBT tokens that you recently purchased with ETH and lock it up for a stipulated timeframe to receive rewards in form of royalties for being a part of the GBT liquidity pool.
Recall how we left out 1% off the original 2.5% charged to an individual upon initiating a transaction on the Gumball Protocol. This is where that plays out.
For every staker on the Gumball Protocol, there is a pool of funds which they get their rewards from for maintaining the GBT liquidity pool. Now that’s where all of that unallocated 1% of the transaction fees go.
BORROWING AND LOCKING ON GUMBALL PROTOCOL
Finally, last but not least among the long list of intriguing features on the Gumball Protocol is the Borrowing and Lending feature on the platform.
Just like every other Automated Market Marker in the space, Gumball Protocol offers its users a standard lending/borrowing feature with a little bit of a tweak.
How do lending and borrowing work on Gumball?
Users on the platform can take their GBT tokens, other than redeeming them for ETH, and instead, they can lock these GBT tokens for ETH. Then, they can borrow the ETH out of the Gumball Machine at an interest rate of 0%.
And that is not even it!
The highlight of it all is that given the constant burning of a fraction of the trading fees and the swapping fees, the overall valuation of the GBT token will keep going up and up as the floor price keeps increasing.
Eventually, the GBT will be worth more than what the user has borrowed. And at that point, they might decide to bring back the equivalent amount of the originally borrowed ETH to get their GBT tokens and then redeem it for the underlying actual ETH.
Pretty awesome right? Well, I thought so too! 😎
Want to find out more?
Join Discord: https://discord.gg/DfMECuGmvk
Stay tuned!
Website: https://www.gumball.fi
Twitter: https://twitter.com/GumBallProtocol
Info GitBook: https://gum-ball.gitbook.io/gumball-protocol
Medium: https://gumballprotocol.medium.com
ILLUSTRATIONS CREDIT: Ceazor’s Snack Sandwitch
