Fracton Protocol

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Fracton Protocol Academy - Meta-Swap

fracton-protocol@newsletter.paragraph.com (Fracton Protocol) — Mon, 04 Jul 2022 15:58:30 GMT

For ease of expression, we will use BAYC as our target NFT to be fractionalized. The following rules will apply to other NFT collections, such as CryptoPuns, Sandbox, and Otherdeed.

In the previous chapter, we have introduced the different NFT fractions of Fracton Protocol - Blind Box, People's BAYC and hiBAYC. More importantly, Fracton designed the Meta-Swap mechanism to support multi-way exchange in the system, which allows users to trade, arbitrage, and redeem in one stop.

What is Meta-Swap？

Meta-Swap is Fracton Protocol's NFT fraction exchange aggregator. Users can use Meta-Swap to convert various NFT fractions or blue-chip NFTs in their hands. The system also supports deposits of new NFTs to the existing vaults or the creation of new NFT vaults.

Token Hierarchy

To better understand Meta-Swap, let's sort out the various types of tokens in the Fracton Protocol.

There are three standards of tokens in the operation of Fracton Protocol. Among them, ERC721, that is, the BAYC NFT ranks the highest because it is a real asset in the BAYC vault, as well as the value foundation of the entire BAYC liquidity pool.

The ERC1155 tokens - Blind Box and People's BAYC - are middle-tier assets, connecting between the existing BAYC and the liquidity token hiBAYC in the system. The number of these erc1155 tokens is directly anchored to the number of BAYC, and the ETH raised by issuing the Blind Box will be used to acquire BAYC for the vault. Besides, People's BAYC can be directly used to redeem BAYC. Therefore, these ERC1155 tokens can be considered as ABS of BAYC.

Ps: ABS(asset-backed security): an asset-backed security (ABS) is a security whose income payments and hence value are derived from and collateralized (or "backed") by a specified pool of underlying assets. In our case, the BAYC vault is the pool.

The ERC20 token, or hiBAYC, ranks the lowest in the protocol hierarchy. They are anchored to the number of People's BAYC and Blind Box, however, they cannot be directly exchanged for BAYC. hiBAYC can be considered as ABS of the middle-tier assets - Blind Box/People's BAYC.

Swap Principle

Meta-Swap's exchange principle is to lock or unlock high-ranking tokens and mint or burn low-ranking tokens. This design aims to stabilize the value system of Fracton Protocol.

In the process of exchanging high-ranking tokens for low-ranking tokens, the high-ranking tokens will be locked in the Meta-Swap system, while the low-ranking tokens will be minted. For example, when People’s BAYC is converted to hiBAYC, People’s BAYC will be locked in the Meta-Swap pool and the newly minted hiBAYC will be distributed to users. In contrast, when exchanging from low-ranking to high-ranking tokens, such as People's BAYC to BAYC, the People's BAYC will be burnt, and the BAYC in the vault will be unlocked and distributed to users.

Such a mechanism can restrain the issuance of low-ranking tokens, ensuring that each lower-ranking token is backed by the corresponding higher-ranking token, and rigidly allows users to exchange fractions for BAYC in the vault that has the real value.

Factory Contract

The factory contract supports the fractionalization of any ERC-721 NFT to create fractions in ERC-1155 and ERC-20 standards and automatically generates an NFT vault without initial liquidity. This function brings robust scalability to Fracton, which will support more blue-chip NFT collections in the future. Furthermore, relying on this factory contract, the curator system will be launched in the v2 version, allowing external users to conduct NFT fundraising on Fracton Protocol in a more decentralized way.

Reverse Tax

The converting from low-ranking tokens to high-ranking tokens shrinks the overall liquidity of the system, the impact of which is similar to that of a contradictory monetary policy. Fracton Protocol will impose a 0.3% reverse tax on these contracting conversions. Specifically, users need to prepare 3 more hiBAYC for every 1000 hiBAYC exchanged for People's BAYC. Similarly, users will pay 1003 People's BAYC in total to redeem one BAYC from the vault. The reverse tax will flow into the treasury and be distributed through DAO governance.

Summary

In Fracton Protocol, this multi-hierarchy asset structure is integrated through Meta-Swap, allowing users to freely trade various fractions in a decentralized way. In actual situations, due to cross-market and other reasons, there will be a spread between different fractions. However, users can easily capture these profits if they are familiar with the Meta-Swap system. In the next chapter, we will delve into the arbitrage opportunities in Fracton Protocol based on Meta-Swap.

Next Chapter - Arbitrage

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Fracton Protocol Academy - hiBAYC

fracton-protocol@newsletter.paragraph.com (Fracton Protocol) — Sun, 03 Jul 2022 15:05:01 GMT

The first two chapters of Fracton Protocol Acadamy introduced the fundraising process through Blind Box and BAYC fractions (People’s BAYC), which can be considered 1/1000 of a BAYC. However, since the ERC-1155 token is still indivisible, the liquidity issue for Blind Box and People’s BAYC still exists despite their contribution toward making blue-chip NFTs accessible for everyone. The lack of liquidity increases the difficulty of asset valuation, reducing the effectiveness of price discoveries through the “invisible hands”. To solve this problem, Fracton has introduced hiBAYC, planning to launch hiBAYC trading pairs on Uniswap and other cooperative CEXs.

For ease of expression, we will use BAYC as our target NFT to be fractionalized. The following rules will apply to other NFT collections, such as CryptoPunks, Sandbox, and Otherdeed.

What is hiBAYC？

hiBAYC is the BAYC fraction token in the ERC-20 standard. During the fundraising period, users can swap their Blind Boxes for hiBAYC at 1:1000. They can also convert their People’s BAYC to hiBAYC at the same rate after opening the Blind Boxes. That is to say, every hiBAYC token represents 1 in a million shares of a BAYC in Fracton’s BAYC Vault.

How to get hiBAYC？

First, users can use the Meta-Swap function on Fracton’s official site to exchange their Blind Box or People’s BAYC for hiBAYC. In addition, taking into account the better liquidity, lower transaction costs, and smoother user experience of centralized exchanges compared to DEX, Fracton will also work with the top CEXs for certain fundraising rounds, with the CEXs acting as the agent to support the fundraising. Users can subscribe for hiBAYC on the centralized exchanges and trade on the hiBAYC trading pairs when launched.

Repurchase

You might be concern about the inflation caused by failed fundraising round. In such a case, the ratio between the total supply of hiBAYC and the number of BAYCs in the Vault will no longer remain 1,000,000:1. hiBAYC will depreciate in value.

Fracton has also considered this matter and designed a repurchase system to tackle the hiBAYC inflation problem caused by any failed fundraising round. Fracton will use the ETH raised from the failed round to buy back the accrued hiBAYC, with the repurchase price being the total ETH raised/(the number of Blind Box minted * 1000). Due to technical reasons, our v1 version cannot execute the repurchase automatically. The repurchase will be carried out by the core members of Fracton as a temporary solution. We will include a decentralized and automatic repurchase system in the upcoming v2 update.

Transaction Fees

For each on-chain transaction of hiBAYC, the contract will charge a 0.2% transaction fee. Due to limitations in the current development stage, our v1 version is unable to decentralize the use of the transaction fees. In the upcoming v2 version, the DAO governance proposal will utilize the transaction fees wisely. They will play a more critical role in the Fracton ecosystem, such as providing liquidity on Uniswap, rewarding early participants, or rewarding early fundraisers.

So far, we have covered the majority of the fundraising function of Fracton Protocol. Fracton created Blind Box and People’s BAYC - tokens in the ERC-1155 standard - to overcome the barriers to purchasing blue-chip NFTs for ordinary investors. To further tackle the issue of lack of liquidity and inefficient pricing, Fracton created hiBAYC - a token in the ERC-20 standard. Since we have introduced all the fractionalized elements in the Fracton system, in our next chapter, we will be explaining in detail Fracton’s multi-standard decentralized exchange pool - Meta-Swap. This is a crucial component of Fracton Protocol, stay tuned!

Next Chapter - Meta-Swap

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Fracton Protocol Academy - Blind Box and People’s BAYC

fracton-protocol@newsletter.paragraph.com (Fracton Protocol) — Sat, 02 Jul 2022 14:04:00 GMT

The previous article introduced some parts of the fractionalization fundraising of Fracton Protocol. This article will explain further the fundraising process by introducing two critical elements of Fracton - People’s BAYC and Blind Box.

For ease of expression, we will use BAYC as our target NFT to be fractionalized. The following rules will apply to other NFT collections, such as CryptoPunks, Sandbox, and Otherdeed.

What is People’s BAYC？

Each People’s BAYC represents a 1/1000 ownership of a BAYC in the BAYC Vault, i.e., a user can redeem a BAYC from the BAYC Vault in Fracton Protocol with 1000 People’s BAYC. You might wonder - the fundraising is conducted through selling the Blind Boxes; where does the People’s BAYC come from?

When the fundraising succeeds, i.e., 1000 Blind Boxes are minted, Fracton will use the ETH from the fundraising pool to randomly purchase a BAYC around floor price and deposit the BAYC into the BAYC Vault. The random selection of BAYC aims to prevent price conspiracy. When the newly acquired BAYC is deposited to the Vault, the smart contracts will grant permission for opening the Blind Box, and users will be able to instantly open their Blind Boxes on our website.

Blind Box - People's BAYC？

The full name of Blind Box is “Blind Box - People’s BAYC”. Blind Box, as well as People’s BAYC, is an ERC-1155 token. Blind Box exists to isolate the possible impact of the new fundraising on the valuation of the existing People’s BAYC and to ensure that each People’s BAYC is backed by its share of the actual BAYC NFT, with the share of ownership remaining constant.

Imagine raising funds directly through People’s BAYC - if a round of fundraising fails, there won’t be new BAYC added to the Vault, while a certain amount of People’s BAYC is minted and circulating in the market. As a result, the number of People’s BAYC versus the number of BAYC in Fracton’s Vault is no longer 1000:1. Therefore, the Blind Box mechanism resolves this problem by acting as a reservoir to absorb the additional funds before a BAYC is added to the Vault. As a result, this mechanism only allows the conversion to People’s BAYC when that value can be pegged to an actual BAYC in the Vault with a constant ratio, that is, 1000:1.

For the NFTs of the same collection, there will be different fundraising rounds, and each round runs independently. A failed round does not affect subsequent rounds, while People’s BAYC has no rounds and is considered undifferentiated fractions that users can use to redeem random BAYCs from the Vault.

To summarize, there are similarities between the Blind Box and People’s BAYC, with the major difference being that the Blind Box is pegged to the value of the target BAYCs that have yet been purchased. In contrast, People’s BAYC is pegged to the value of BAYCs acquired in Fracton’s BAYC Vault.

Step-by-Step Guide

Click Convert on the top of the page, then you can see your collections of Blind Box and People’s BAYC.

Click Sell in Market, switching to the cooperative marketplace to trade your Blind Boxes.
Once the BAYC is deposited into the treasury, the Open button will be active, and you are allowed to open your Blind Boxes in this round.
Click Open, and your wallet will ask you to confirm the action.
If the convert transaction succeeds, you’ll see the People's BAYC information in another pop-up.

By the way, both People’s BAYC and Blind Box can be exchanged for ERC-20 BAYC Fractions - hiBAYC through Fracton’s unique Meta-Swap function on our website. We will introduce more details on this in our next article.

Next Chapter - hiBAYC

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Fracton Protocol Academy - Fundraising Through Fractionalization

fracton-protocol@newsletter.paragraph.com (Fracton Protocol) — Fri, 01 Jul 2022 15:46:52 GMT

Fracton Protocol ("Fracton") has many product design innovations to balance between being decentralized, having sufficient liquidity, and meeting all kinds of transaction needs. We recommend our users spend some time understanding our product to achieve a smoother user experience.

In the coming week, we will publish more articles to introduce our product functions and their logic.

For the convenience of expression, the narratives below will take BAYC as an example. Other NFT collections such as CryptoPunks, Sandbox, and Otherdeed follow the same mechanism and rules as BAYC.

Why do we need to raise funds?

As we all know, blue-chip NFTs are expensive due to their unique design and scarcity. Therefore, the bar for participating in the blue-chip NFT market is very high for any ordinary user. Therefore, allowing users to participate in the market through crowdfunding will be an effective solution. Fracton, as a fractionalization protocol, acts as an intermediary platform where our users can jointly put together their funds to purchase and own the BAYC.

Fundraising for what？

Since Fracton exists to allow more people to own quality NFTs with limited resources, we are targeting mainstream NFTs with a current focus on the top PFPs and Lands, such as BAYC, CryptoPunks, and Sandbox. These collections tend to attract more attention and have better liquidity. But, most importantly, they are too pricey for ordinary investors.

NFT Vault

Different NFT collections have various vaults in Fracton Protocol, such as the BAYC Vault and the PUNKS Vault. The smart contracts generate a corresponding number of fractions according to the number of BAYC in the vault to ensure each fraction corresponds to a constant share of the BAYC.

Dynamic Pricing

Fracton Protocol differs from other fractionalizaiton protocols as the NFT fractions issued through other protocols are not backed by NFT. On other platforms such as Fractional. Art and NFTX, the NFT holders initiate the offering and pricing of the NFT fractions. Such centralized design results in relatively higher pricing, which restraints users' demands, reduce market efficiency, and eventually leads to a failure to sell all the NFT fractions. If the fractions are not entirely absorbed by the market during the initial offering, it will be difficult to price them later, and no one will be willing to provide liquidity.

The fundraising design of Fracton will take the fractionalization process to the next level, where the pricing of NFT fractions will be dynamically adjusted according to the market conditions, allowing for a fairer valuation of NFT fractions at the initial offering. We believe this mechanism enables users to purchase NFT fractions without worrying about unreasonable pricing, attracting more buying power.

A Brief Fundraising Process

Fracton will first select a quality NFT collection, in this case, BAYC, and then initiate the fundraising campaign. During each round of fundraising, the ETH from minting Blind Box-Peoploe's BAYC flow into the fundraising pool address. If the fundraising is successful, the funds in the address are used to buy the target BAYC, with the remaining returned to the funders. (In v1 of Fracton Protocol, the remaining ETH will be accumulated in the Treasury due to high gas fees, which will be governed by DAO in terms of whether to support the future purchase of BAYCs when the funds are insufficient. In the upcoming v2, we will have our layer2 solution, which will enable us to refund each funder's remaining ETH.

As v1 users are not able to receive the remaining funds, we will compensate for this loss through DAO governance. For users participating in the fundraising through centralized exchanges, the exchanges will cover the gas fee and return the remaining funds. More details about the mechanism of Blind Box Meta-swap will be explained in future articles.

Step-by-step Instructions

Decentralized Issuance - Fracton Official Website

Go to Fracton Protocol Home page: http://fracton.cool/
Click Fundraising button on the top of the website.

Connect to your Web3 wallet(such as MetaMask) and make sure your network is set to Etherscan Mainnet.

You can see a list of all the running fundraising for different collections. Click the banner to enter the project that you desire.

Then, you are on the Mint Blind Box page

Enter the amount you’d like to mint, and the dashboard will present the price information and available balance of blind boxes in the current round.
When you are ready, click MINT, and you will get your Blind Boxes.

In addition, Fracton will be partnering with the top CEXs for fundraising campaigns.

Stay tuned for more details.

Next Chapter - Blind Box and People’s BAYC

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Fracton Protocol - Fractionalize all the blue-chip NFTs for everyone

fracton-protocol@newsletter.paragraph.com (Fracton Protocol) — Mon, 27 Jun 2022 06:31:16 GMT

Overview

Non-fungible tokens have recently gained momentum in crypto markets, and half of the ETH gas burned due to NFT mintings and transactions. However, as their name suggests, NFTs are indeed non-fungible, non-divisible, and therefore illiquid. For instance, the average cost of buying a BAYC on the secondary market would be more than 80 ETH, and these well-established collections are restricted to crypto whales and the rich.

Therefore, here we aim to solve the pain point of poor liquidity and unacceptable prices of NFT assets by introducing meta-swap, NFT liquidity pools, and derivatives.

What is Fracton Protocol?

Fracton Protocol is a fractionalization trading platform for blue-chip NFTs. It enables efficient price discovery and equity distribution of NFTs by allowing users to buy, own, and trade fractionalized tokens in ERC-20 and ERC-1155 standards.

What is NFT Fractionalization?

NFT fractionalization refers to splitting a complete NFT into smaller pieces, thus allowing multiple people to gain partial ownership of the same NFT. Users can imagine NFT as a cake, and fractionalization is to cut up the complete cake for numerous people to enjoy.

Highlights

Compared with other fractional protocols, there are several distinct functions of Fracton Protocol:

■Fully Decentralized: Fracton users can pre-screen the NFT collections before fractionalization, actively manage NFTs and distribute related benefits.

■Dual Fractionalization: Fracton creates the Meta-Swap mechanism that supports exchanges among ERC-20, ERC-721, and ERC-1155.

■Price Discovery: Fracton aggregates valuation information from many users to provide fairer pricing for NFTs, laying the foundation for building NFT financial products such as NFT perpetual and ETF.

■Fees Collecting: Fracton captures value through transaction fees to stabilize and reinforce the system.

How does Fracton work?

When you come to Fracton Protocol, you can join the open fundraising, which is the first step of the fractional process of the target NFT. After receiving your People's NFTs (i.e., the ERC-1155 fractions), you can swap them for smaller pieces of ownership – the $FFTs (i.e., the ERC-20 tokens) - at a 1:1000 ratio.

If the fundraising round succeeds, Fracton Protocol will acquire the targeted NFT and deposit it into the treasury. Then, the fractions owners are allowed to redeem any NFTs with enough People's NFTs instantly.

If the fundraising round fails, Fracton will use the funds raised to repurchase the accrued $FFT released in this round, ensuring the exchange rate is valid.

Meanwhile, fractions owners can trade $FFTs in DEX and cooperative CEX, seeking arbitrage opportunities.

Vision

Fracton Protocol wishes to construct a bridge between the decentralized world and centralized exchanges, attracting more people to join the NFT world, holding more high-quality NFT collections, and making the NFT market great again!

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