How NFTs are Revolutionizing DAO Finance with Kevin Seagraves

all right hello everybody how's everyone doing at eat Denver all right my name is Kevin Seagraves I'm the CEO of nifty Apes been in the space for a while um was involved in the East Denver uh East Boulder organizing Community um was the author of Bitcoin grants v0 who's the the one of the co-founders of the e-security community and um I'm here to talk about nft seller financing so the topic of this talk is um basically like how to advance Dow finances we've created a new Financial primitive that Dows and other people can use to finance purchases with nfts so really the tagline is buy now pay later with terms that don't suck if you want to buy an nft with 20 down zero percent interest over six months this is a system that enables that it's a new risk model that is an advancement in nft financialization and nft lending so let's get into it see how does this work the problem is buyers want to use financing these terms are too damn High the ltvs are too low the durations are too short and aprs are too high typically ltvs are like a 70 LTV meaning like all right it's a 30 old TV rather meaning it's a 70 down payment if you were to purchase this with an nft the duration is typically anywhere from two weeks to 30 days so not very long and the aprs are generally on your blue chips 30 to 40 percent and on middle range assets it's like 50 to 60 APR which is pretty terrible if I'm trying to buy something why does this happen basically there's a third-party lender who's providing liquidity right the buyer wants to buy an asset a seller has listed it for sale they say hey lender I need some money to go pay this seller so the lender gives them a 30 uh you know down uh yeah for the down payment uh the buyer turns around and now they've got a 70 down payment they're going to give to the seller and they need to pay back the lender um 50 to 60 APR over 30 days the seller then exits the system with that 30 percent of the value right which increases risk for the two remaining actors buyers and lenders the solution is seller financing it's a it's a model that is seen ubiquitously throughout traditional Finance but has not yet been applied to web 3 and to nfts so we allow sellers to finance terms directly to the buyer so now the buyer says okay I'll just give you 20 now and then pay you in installments over time that's it way more simple right so by removing that third party lender we enable higher ltvs longer durations and lower aprs this is now available we launched to to mainnet yesterday morning and we're now in prod at marketplace.nifty eight stop money this is actually our first integration on top of reservoir so this this doodle is available right now 1.19 East down payment zero percent interest over six months we got a couple other things listed please go check it out also announcing the Nifty Apes SDK if you have a Marketplace and you want to offer seller financing to your users we have a product for you to be able to do so uh this is a main go to market strategy so please come talk to us I'm wearing this yellow t-shirt uh you know where to find me there's more t-shirts over here Andre's got a big pile of them so feel free to grab one but at the end of The Talk uh so this enables again nft seller financing in any nft Marketplace also announcing season two of banana drops we've been running for the last couple months a banana drops campaign so if you prefer perform certain actions on the Nifty Apes uh platform you can be rewarded with an nft um we're now launching season two to award points for certain actions in the Nifty Apes Marketplace how does this benefit the house so dows typically have a treasury those treasuries are trying to figure out how to extend runway in this bear Market running a seller financing strategy is one way to generate yields the business model is actually pretty attractive so if someone defaults what happens right and in the first case let's say it's a 100 eth asset I'm selling it to the buyer I say hey buyer give me 20 down and then you can pay me the rest over the next six months plus interest right seems pretty good if the buyer defaults I get to keep the down payment and any payments they've made so far and I get to keep the asset that I can then resell right so as a seller I'm significantly hedged on the downside right my carry risk during that loan basically the down payment is my volatility margin I now have the ability to maintain a lot of value in the downside case so if you're an nft Dao or if you dial like collection okay you might want to run a strategy where you hedge your downside risk your carry risk on your nfts by selling a couple with seller financing other tools that we've built for dows so we also offer rolling lines of credit so if you have an nft that you would like financing on you want to get liquidity but not have to sell your asset you can now come get a loan on Nifty apes and each month you just pay your interest payment and roll it over to the next month you don't have to pay back your whole loan and do another price Discovery and do the whole rigmarole of finding another lender you just click a button pay your interest and roll the loan over in perpetuity this is another major advancement in nft lending we just decided to share seller financing because it's even more exciting we've also developed Dow bonds with heji shout out to Lindsay I saw him over here yesterday had you guys are great basically a Dao can lock up erc20 tokens inside of an nft making users for vesting or you can do like treasury swaps you can do really cool things with Hedges one thing you can do once you've locked your UFC 20 is inside of an nft is you can borrow against it or you can lend against it either way and so what you can do as a treasury you lock up your your erc20s and then you can go get liquidity from A lender against that asset if you the Dow default then the lender acquires a stake in your Dow the other option is to just like get more Runway build more product and get to revenue so these are some of the other products we've built for dows and um that's the end of my talk uh we got another 11 minutes on the clock um let's see actually we can see the nip behaves Marketplace live by now pay later returns that don't suck these are the assets we currently have for sale these are our featured offers rather um so yeah I will end it there and see if there's any questions from the crowd anybody got anything yeah what do you got how do you think about the credit worthiness like I mean you're talking about a lending platform so anyone can get this rolling line of credit or bonds like how do you think about credit worthiness as a way to decide whether someone gets lending or not like somebody can borrow or not yeah so that is up to basically these two products are collateralized lending right rolling lines of credit and DOW bonds there is collateral backing that loan so if the borrower defaults the lender can seize that asset similarly and so they're financing there's an nft backing that loan but the counterparty risk which I think is what you're asking about the counterparty risk uh is basically nullified because I have this asset that I can reclaim and so seller financing is actually a form of uncollateralized Lending typically in D5 there are the the borrower has to put down some collateral that can then be seized by the lender with seller financing the seller's actually posting the collateral selling that asset and the buyer is just putting it down payment they're just buying the asset the beginning the purchase process and if the buyer doesn't complete that process then the seller gets to reclaim that item any other questions Andre's saying we got t-shirts so if anybody would like one of these that features bananas yeah you got a question what's up yeah I have a couple questions specifically on the seller financing for both buyers and sellers how do you think about price volatility like if I'm buying an nft over the course of six months what if that asset either appreciates or depreciates is that price locked in at the outset or is it is it variable over that time yeah so the price is locked in at the at the point of sale right so as a buyer maybe I'm treating this like a pseudo call option right do I think the price of this asset will be more at the end of let's say 30 days right if yes then I'll lock in my price the price moves up I then realize the loan and I can sell on spot what's cool is we actually in a fast follow feature will have the ability to list the asset for sale at any time as long as it can pay off the loan so the question comes becomes do I think this asset will be worth more at the end of 30 days instead it will be do I think this will asset will be worth more at any point in the next 30 days is that I can exercise that option at any time I can I can actually set a limit order and allow the market to move in that direction Once I pass the floor price that asset in theory will get exercised it'll pay back the loan and me the buyer gets to keep the profit as a seller the down payment is my volatility risk right so let's say I sold it for 100 each I got a 20 down payment so 20th I'm now 80 like LTV the price has to drop 20 for that buyer to have Game Theory reason to default on the loan over time if you're making installment payments each installment payment de-risks the loan further right so let's say I'm making a you know 15 each payment each month cool month two I now have 35 East volatility margin off of my original price does that make sense yeah one other question though is just in terms of like the buy now pay later model whereas if you're a seller and you're not getting any APR over the course of this six months is Nifty Apes paying the seller the full price up front or are they collecting it over the term of that loan because my understanding with like the affirms of the world if not the affirms of the world retailers and Merchants are receiving the full price up front when somebody purchases you know a t-shirt or a pair of sneakers and it's a firm that's taking the credit risk over that period of time not the merchant itself yeah so the terms are entirely set by the seller um so basically the the terms that we're displaying here are for example but what's cool is seller financing is I can provide a markup so let's go back to the 100th asset example right I can buy it at spot for 100 as a seller let's say it's my cost in I can list it for a hundred and two point five two point five percent markup and if I'm selling it to you over six months like that's still pretty attractive but I can lock in a 2.5 gain on that sale so it's kind of a synthetic um APR rather so it's like you can do it either way but zero percent looks like way better right like that looks pretty baller that's something I want as a buyer so that's kind of why we displayed it the way we did we plan on offering kind of normalized terms there is kind of a Game Theory optimal return the way and as a way to set like set terms most of that's based off of like historical volatility et cetera et cetera there's like whole models for this um and so coming soon basically okay sweet thanks any other questions from the crowd yeah we got another one up here oh sure and I'm just standing over here to hear you a bit better okay uh I'm kind of curious uh the way we think about the Returns on nfts is very different from like what you would think about Returns on a normal Financial product right like it's people are thinking about 20 30 returns and how does that play into any of the credit lines in this like how do you think about it and why is that the case in the first place like um just kind of give me a little bit info on on that and I think you just mentioned the game theory part on how the volatility kind of historical prices are so can you talk about that a little bit as well thank you yeah sure so how do you think about returns so as a Trader so we are at protocol uh we're not necessarily a market maker at this point in time we are listing some for sale so you could say that like okay we're trying to seed the market but how does a how does a market maker um kind of determine whether what what the prices should be and what their what their return is going to be depending on there's a couple variables so it's the duration of the loan um it's the default rate it's the down payment it's the interest rates uh it's my markup right all of those factor into what my return might be and the better those terms are the higher my returns are the biggest the biggest factors are uh the amount of down payment because that's my volatility risk which then affects my default rate I actually make more money as a market maker when people default because I realize again they've defaulted I get that 20 and I re-list that asset for sale so my volume of capital is actually much much greater the shorter the duration of my loan also the higher the volume of my Capital so my my my original pile of money compounds faster in those kinds of circumstances um so I think that answers your first question I forget your second question can you ask it again you you were talking about Game Theory being used to determine the uh the price margin and stuff like that like yeah yeah so that that's just kind of like um traditional Financial modeling um there's not really anything special about this particular model other than that it's and if it's web 3 native seller financing so this is a straight straight up loan um it's a mortgage essentially and um will you get a mortgage on a house it's also like a call option you're basically putting a call option on that house on that neighborhood do you think the value of that house is going to go up in value uh and so this is just like these are more speculative highly volatile assets and so you see more of that Dynamic so basically modeling out the game theory figuring out what's the optimal terms to provide it's a it's a question of um basically yeah finding the right model doing the right simulation and uh probably running some ml not uh so doing this on web3 is not very different from doing it on a rocket thing I mean there's no difference that comes from this being a decentralized platform so this is a very web 3 native uh mechanism so what happens is tradition in the traditional world to do seller financing like if I have a house and I'm a seller seller financing it's pretty scary right the legal risk of doing it right um the time and money to get a lawyer to do it for me what happens if I have to repossess the house like that's really hard to do these are digital digitally native assets right so the the basically the uh the the legal risk is now abstracted away to the smart contracts it's just in a protocol we'll do it all for you you set the terms it just happens it's magic right if someone defaults I don't have to worry about kicking out of their house I can with a button click sees your asset and repossess this is a very crypto native system which is different than a traditional Market this isn't these aren't true options so doing it like in a traditional Market it has similar Dynamics but there's not a one-to-one translation does that answer your question thank yeah and we have one more over here we have a minute and 14 seconds on the clock um so uh two very small ones one is the asset is held in escrow as the okay the second one is why would buyers want to uh sorry sellers want to sell on this platform rather than somewhere where they just sell and instantly get their money so first is the escrow um it is an escrow buyers have the ability there's two ways to verify ownership right so there's a pull function so you can ask the contract hey does this address own this asset that it says it does yes that's possible the other is a push so it's called a flash claim basically you can write a smart contract integration that will say okay hey the message.sender this transaction is the owner of this asset in escrow it'll pull that asset out of escrow give it to this integration contract it can do any arbitrary action vote in governance like a nouns Dow it could claim an airdrop it could do whatever you want on chain action as long as that asset is returned to Escrow by the end of the transaction the protocol does not care if it's not returned the transaction reverts and everything nothing it's like nothing happens so that's answer number one answer number two was why would sellers want to use this rather than just sell it on spot I can get a stream of Revenue I can get a I can sell for more um yeah there's basically like pretty interesting Dynamics in the business model of why a seller would want to do this your typical seller maybe it's a little bit harder to understand but as a more sophisticated Trader these are dynamics that are very familiar and attractive so that's a little bit of an ambiguous vague answer but happy to talk more about about it after um I'm at negative 29 seconds I think that's it for everybody thank you so much for being here happy ethanver have a great day everybody foreign