Author: Furion

Introduction: Furion Bridges NFT and DeFi

A long-standing issue in the NFT market that has been criticized by Web3 players is its lack of liquidity. Although there are some lending platforms in this immature market, such as BendDAO, ParaSpace, and Blend, that offer NFT collateralized lending, the available collateral options are limited to a few popular blue-chip NFTs. As a result, many NFT users can only hold their NFTs and hope to sell them for profit after appreciation, without fully utilizing their liquidity during the holding period. Clearly, the NFTFi market needs more comprehensive NFT liquidity solutions to endow NFTs with richer financial attributes.

Furion was born out of this need; the team identified the market demand and aims to fill the current gap in the NFTFi market by fragmenting NFTs into F-X tokens and creating more use cases for NFTs, such as AMM, lending, leverage, and more.

We firmly believe that the future value of NFTs goes far beyond being just PFPs; their unique non-fungibility and traceability will become true proofs of real assets.

Therefore, Furion is committed to breaking the liquidity constraints of these assets, expanding the diversified financial attributes of NFTs, and laying a solid foundation for the future development of NFTFi, building a more diverse NFT ecosystem.

Innovative F-X Token Model, Unlocking NFT Liquidity

To maximize the capital efficiency of NFTs, Furion allows NFT holders to fragment their NFTs into F-X tokens. 1 NFT equals 1000 F-X tokens, where X represents the series to which the NFT belongs.

For example, with Milady:

Holders can deposit Milady (ERC721) into Furion's Milady liquidity pool to receive 1000 F-Milady (ERC20). In other words, 1000 F-Milady equals 1 Milady NFT. Regardless of the NFT's token ID or rarity, "1000 F-Milady equals 1 NFT" is constant, and fragmenting Milady into 1000 F-Milady converts the asset from a non-fungible token (non-standard asset) to an ERC20 token (standard asset), granting holders greater flexibility and capital efficiency. If the price of Milady is 4 ETH, the equivalent of one F-Milady is 0.004 ETH, allowing users to trade or operate with 0.004 ETH instead of 4 ETH.

Conversely, if a user wants to obtain a Milady NFT, they need to exchange 1000 F-Milady tokens. There are several ways to acquire F-Milady:

1. Fragment one Milady NFT to obtain 1000 F-Milady.

2. Swap other tokens for F-Milady tokens in Furion's AMM Swap.

3. Collateralize an NFT in Furion's lending market to borrow F-Milady tokens.

It is important to note that since the ratio of 1000 F-Milady = 1 Milady is fixed, 1000 F-Milady tokens can be exchanged for any Milady NFT from the Milady NFT pool.

How is F-X Token Anchored to the Value of NFTs?

When F-X tokens deviate from their intrinsic value (1/1000 of the NFT value), market arbitrageurs will intervene to pull the market price of F-X tokens back to 1/1000 of the NFT value.

For example: If the floor price of Milady is 4 ETH, each F-Milady is valued at 0.004 ETH (1/1000 NFT value). When the price of F-Milady tokens falls below 0.004 ETH, arbitrageurs will buy F-Milady tokens, exchange them back for Milady, and sell for profit, earning the price difference. This will pull the price of F-Milady tokens back up, and vice versa.

Use Cases for F-X Tokens

1. Lending Market

Furion's lending market is similar to lending protocols like Compound and Aave, allowing users to use a basket of assets (including F-X tokens) as collateral for lending.

In simple terms, Furion allows users to borrow any type of ERC-20 (including stablecoins, ETH, fragmented NFTs, etc.) against any type of ERC-20, provided there is a trading pair. Here, Furion has made two major breakthroughs:

In essence, Furion's lending platform builds on leading lending protocols by adding F-X tokens as collateral and borrowable assets, indirectly releasing the liquidity of NFTs.

Features of Furion's lending platform:

1. Allows the lending of fragmented NFTs.

2. Flexible lending methods: addresses issues such as low liquidity and offers greater composability and scalability.

2. AMM Swap

Fragmenting NFTs into F-X tokens greatly enhances the liquidity of NFT trading, allowing users to trade with fungible tokens and smaller trading units. Mimicking the characteristics of mainstream AMM exchanges, Furion AMM forms a trading pair with every two tokens, enabling users to become liquidity providers in the AMM liquidity pool and earn trading fees.

Trading NFTs in the form of F-X tokens through AMM has two major benefits:

1. Lowers the entry barrier. Users do not need to purchase an entire NFT; they can buy any amount of F-X tokens.

2. More diversified investment portfolios. Furion allows users to use the same funds to purchase multiple F-X tokens, indirectly holding a portion of NFTs and diversifying investment risks.

3. Leverage Trading

Currently, the daily trading volume of NFT derivatives is about $3.3 million, which is approximately 3.3% of the NFT spot trading volume and accounts for about 0.015% of the total market capitalization of NFTs, representing less than one-tenth of the overall decentralized derivatives market.

While there are many long and short contract products for tokens, there are very few long and short derivative products for NFT prices, despite high demand. Given Furion's fragmentation characteristics, it is well-suited as an NFT derivatives platform. Through Furion lending, users can go long or short on NFT prices.

Here is an example of shorting using the lending market:

If you believe BAYC is in a bear market and want to short BAYC, you first need to collateralize ETH on the Furion lending platform to borrow F-BAYC, then convert F-BAYC into ETH through Furion Swap and sell (shorting). If the price of BAYC eventually drops, you can buy back F-BAYC at a lower price, repay the loan, and retrieve the collateralized ETH, thus earning the price difference.

Furion's advantage is that users do not need to execute multiple trades; they simply choose the leverage multiplier and press a button, and the smart contract will automatically perform Lend & Swap to maintain the position for them.

What if Rare NFTs Don't Want to be Fragmented?

Since "1000 F-Milady = 1 NFT" is constant, NFTs in the liquidity pool can be exchanged at will. Therefore, users who own rare NFTs naturally will not place their NFTs in the pool. To address this, Furion has specially designed a "Stake" function, allowing users to choose to "Stake" their NFTs in the pool without losing ownership.

Users who choose to stake will only receive half of the liquidity (500 F-X tokens), and the NFT can only be staked for 60 days. During the staking period, the NFT cannot be exchanged or sold, and it can only be redeemed after the user returns 500 F-X tokens within 60 days. If the user does not redeem the NFT after the lock-up period, the NFT will be released into the public storage pool, and a penalty of 300 F-X tokens will be charged, while the remaining 200 F-X tokens will be returned to the storage user.

In simple terms, Stake allows users to gain partial liquidity while retaining ownership, but they need to redeem the NFT within a certain timeframe.

Advantages of NFT Fragmentation

Reducing Liquidation Risk

Many NFT lending protocols experience death spirals during liquidation, while Furion's fragmentation and liquidation model significantly reduce the chances of such occurrences.

Case Study: Bob owns 1000 F-X (worth 100 ETH) and uses it as collateral to borrow F-Y. Assuming the collateral factor is 0.5, Bob can borrow up to 50 ETH worth of F-Y, and he ultimately chooses to borrow 40 ETH worth of F-Y, with interest of 1 ETH, for a duration of two months. When the total value of 100 ETH F-X (collateral) drops to 81 ETH, the loan plus interest (41 ETH) exceeds the maximum borrowing limit (81 * 0.5 = 40.5 ETH), triggering the liquidation process. In Furion's liquidation process, the liquidator can repay up to 50% of the debtor's outstanding debt. Now, Alice repays half of Bob's debt (20.5 ETH) and receives a corresponding amount of F-X collateral (worth 21.525 ETH; the 5% difference is an incentive for Clara to repay Timmy).

Now, Bob has 20.5 ETH in outstanding debt (with collateral worth 59.475 ETH), and the health factor of the loan returns to a healthy state greater than 1 (59.475 * 0.5 > 20.5), stopping the liquidation. This shows that compared to traditional NFT lending platforms like BendDAO, Furion will only liquidate a maximum of half of the outstanding debt at a time, rather than liquidating the entire NFT all at once. Moreover, during a bear market, even if there is a significant drop in the floor price, the reduced amount that needs to be liquidated (taken over) lowers the chances of a death spiral occurring during liquidation.

Differences Between Furion and Other Fragmentation Platforms

Connecting the Liquidity of NFTs in the Same Series

Currently, NFT fragmentation platforms in the market only achieve "fragmentation" of NFTs but do not achieve "fungibility." Fragmenting a single NFT further disperses the liquidity of NFTs.

Why is there no arbitrage space?

Let’s explain with a case:

If an Azuki is worth 15 ETH and is fragmented into 100 pieces, each piece is worth 0.15 ETH. If tomorrow Azuki appreciates to 30 ETH, the price of the fragmented NFT will be far from 0.3 ETH. However, if a user wants to arbitrage, they need to collect 80% of the fragments (due to high slippage), which is undoubtedly difficult. This is precisely because different NFT individuals have different tokens, leading to dispersed liquidity and high arbitrage costs.

Furion solves the above problem by fragmenting NFTs near the floor price within the same series, increasing liquidity.

Layer 2 Cross-Chain

When users fragment NFTs into 1000 F-X tokens, the Furion protocol actually performs cross-chain operations.

First, when users deposit NFTs into the liquidity pool, they are locking the NFTs in an Ethereum contract, and then minting NFTs for users on Arbitrum, achieving cross-chain transfer of the NFT's intrinsic value. Therefore, users' F-X tokens are on Arbitrum, reducing operational costs.

Conversely, when users exchange 1000 F-X for NFTs, the transaction is conducted on Arbitrum, and the protocol will send the NFT to the user on the mainnet.

So, why perform cross-chain operations? There are two reasons:

1. Lower Costs: The gas fees on the Ethereum mainnet are relatively high; even in a bear market, the transaction cost for some 1-2 ETH NFTs can reach up to 300 USD. Cross-chaining to Layer 2 can reduce gas fees and user costs. In Q4 2023, Layer 2 upgrades will further reduce gas fees, attracting more NFT projects (especially those with lower prices) and indirectly stimulating demand for NFT lending.

2. Future Trend: Vitalik Buterin has pointed out that "layer 2s are the future of Ethereum scaling," and most transactions will occur on Layer 2 in the future, with Layer 1 only responsible for settlement. Therefore, in terms of long-term development, using Layer 2 will be a better choice.

Conclusion

Furion enhances the liquidity and capital efficiency of NFTs by fragmenting them into F-X tokens. Holders can deposit NFTs into the liquidity pool and receive a corresponding number of F-X tokens, and vice versa. The value of F-X tokens maintains a fixed ratio to NFTs, and market arbitrageurs will intervene to pull back the prices of deviated F-X tokens.

Furion offers features such as lending markets, AMM Swap, and leverage trading, allowing users to collateralize, trade, and perform long and short operations with F-X tokens. For rare NFTs that do not want to be fragmented, the platform provides a "Stake" function, allowing users to place NFTs in the liquidity pool while retaining partial ownership. Additionally, Furion's fragmentation and liquidation model reduce liquidation costs and the chances of death spirals occurring.

Overall, Furion has re-innovated NFT fragmentation, horizontally expanding the use cases and liquidity of fragmented tokens.