NFT lending service JPEG'd will soon enable owners to borrow against one of the most recognizable and high-value NFT collections, CryptoPunks. The service will use decentralized oracle provider Chainlink for its data feed.
Non-fungible token are cryptographically unique digital assets that can be linked to content such as images or video. In the case of CryptoPunks, they form a collection of 10,000 randomly generated pixel art images of punks, each with a unique set of attributes. Rare CryptoPunks have sold for millions of dollars each.
Yet CryptoPunks and other NFT projects exist in a siloed market, the team behind JPEG’d said in a statement shared with Decrypt. Their aim is to better integrate these collections within the wider decentralized finance (DeFi) sector, so that users can access liquidity by using their NFTs as collateral, while still retaining ownership of the tokens themselves.
JPEG'd isn't the only service in this fast-moving sector; others include NFTfi, backed by Roham Gharegozlou, CEO of Dapper Labs—the company behind Cryptokitties and NBA Top Shot.
DeFi money market Aave has also tapped into the concept with Aavegotchis, NFT crypto-collectibles used in a game universe; every Aavegotchi has Aave's aTokens staked inside them as collateral, meaning that each one generates yield on Aave.
JPEG’d and Chainlink
JPEG’d, which is governed by a Decentralized Autonomous Organization (DAO,) is offering CryptoPunk owners the opportunity to open up a so-called NFDP (non-fungible debt position). This works by allowing them to deposit their CryptoPunks into a smart contract and mint a synthetic stablecoin (PUSd,) which provides them with liquidity and the ability to earn yield in DeFi.
In addition, JPEG'd have introduced safeguards for extra investor protection. Its insurance mechanism will be "the first of its kind" and will give depositors "peace of mind that in the event of liquidation they can repurchase their NFT from the DAO, instead of it being instantly sold on the secondary market," a JPEG'd spokesperson told Decrypt.
But accurately pricing the NFTs is no easy task. Spot pricing, the team maintains, is not an accurate approach for reasons including susceptibility to manipulation and the range of prices in most collections, which can skew overall valuation.
Instead, JPEG’d has tapped Chainlink to accurately price the NFTs used as collateral with a custom-designed solution based on a CryptoPunks price feed.
Central to the feed is the so-called Time-Weighted Average Price (TWAP), to measure both sales and floor prices of individual pieces, creating a blended price that mitigates outlier events and makes it harder to manipulate pricing.
Ultimately, JPEG’d plans to offer its services for other popular NFT collections including EtherRocks, Art Blocks, Dino Pals, Autoglyphs, and Bored Ape Yacht Club.
Meanwhile, Chainlink is aiming to set a new industry standard in how well-established NFT collections are fairly and securely priced on-chain.
"This is a major step forward in merging the NFT and DeFi worlds and will enable some very interesting use cases,” Johann Eid, Head of Integrations at Chainlink, told Decrypt.
JPEG'd, which is an anonymous team, added that its "vision for the future sees the NFT space expanding to music royalties and albums."
That might mean you could even make money off that dusty Mariah Carey album.