Perpetual Contract NFT as Collateral for DeFi Composability

Decentralized Finance (DeFi) is an emerging financial service model based on blockchain technology. DeFi composability denotes the ability for different DeFi services to interact with one another resulting in new forms of financial services. The DeFi ecosystem is largely based on ERC-20 tokens that...

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Main Authors: Hyoungsung Kim, Hyun-Sik Kim, Yong-Suk Park
Format: Article
Language:English
Published: IEEE 2022-01-01
Series:IEEE Access
Subjects:
Online Access:https://ieeexplore.ieee.org/document/9967987/
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author Hyoungsung Kim
Hyun-Sik Kim
Yong-Suk Park
author_facet Hyoungsung Kim
Hyun-Sik Kim
Yong-Suk Park
author_sort Hyoungsung Kim
collection DOAJ
description Decentralized Finance (DeFi) is an emerging financial service model based on blockchain technology. DeFi composability denotes the ability for different DeFi services to interact with one another resulting in new forms of financial services. The DeFi ecosystem is largely based on ERC-20 tokens that can represent the value of an asset. Collateralized assets in DeFi composability are locked and additional profit cannot be generated. In this paper, we propose a method to generate profit from locked assets by using ERC-721 Non-Fungible Tokens (NFTs) and perpetual contracts. NFT represents the rights to a certain asset. A perpetual contract is a futures contract that does not have an expiration date. We propose perpetual contract NFT, a new form of NFT that can be used as collateral, which exploits perpetual futures contracts in the cryptocurrency derivatives market. Collateral needs to be provided to back the value of a perpetual contract. If the perpetual contract is minted as NFT, the resulting NFT represents the rights to the perpetual contract and its collateral. Therefore, the perpetual contact NFT itself can be used as collateral for DeFi composability. A proof-of-concept smart contract and a web application for perpetual contract NFT are provided to demonstrate its functionality. To validate the profitability of the perpetual contract NFT using a real-world scenario, we experiment with the position NFT of Uniswap v3 decentralized exchange. The position NFT is a form of perpetual contract NFT. Specifically, we present validation with three types of pools: stablecoins, stablecoin/wrapped tokens pair, and wrapped tokens.
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spelling doaj.art-792a0491fda441ea9b7df936a8a630512022-12-22T04:20:09ZengIEEEIEEE Access2169-35362022-01-011012680212681410.1109/ACCESS.2022.32258849967987Perpetual Contract NFT as Collateral for DeFi ComposabilityHyoungsung Kim0https://orcid.org/0000-0002-4307-2691Hyun-Sik Kim1Yong-Suk Park2https://orcid.org/0000-0002-6694-5125Korea Electronics Technology Institute, Seoul, Republic of KoreaKorea Electronics Technology Institute, Seoul, Republic of KoreaKorea Electronics Technology Institute, Seoul, Republic of KoreaDecentralized Finance (DeFi) is an emerging financial service model based on blockchain technology. DeFi composability denotes the ability for different DeFi services to interact with one another resulting in new forms of financial services. The DeFi ecosystem is largely based on ERC-20 tokens that can represent the value of an asset. Collateralized assets in DeFi composability are locked and additional profit cannot be generated. In this paper, we propose a method to generate profit from locked assets by using ERC-721 Non-Fungible Tokens (NFTs) and perpetual contracts. NFT represents the rights to a certain asset. A perpetual contract is a futures contract that does not have an expiration date. We propose perpetual contract NFT, a new form of NFT that can be used as collateral, which exploits perpetual futures contracts in the cryptocurrency derivatives market. Collateral needs to be provided to back the value of a perpetual contract. If the perpetual contract is minted as NFT, the resulting NFT represents the rights to the perpetual contract and its collateral. Therefore, the perpetual contact NFT itself can be used as collateral for DeFi composability. A proof-of-concept smart contract and a web application for perpetual contract NFT are provided to demonstrate its functionality. To validate the profitability of the perpetual contract NFT using a real-world scenario, we experiment with the position NFT of Uniswap v3 decentralized exchange. The position NFT is a form of perpetual contract NFT. Specifically, we present validation with three types of pools: stablecoins, stablecoin/wrapped tokens pair, and wrapped tokens.https://ieeexplore.ieee.org/document/9967987/Automated market maker (AMM)blockchaindecentralized exchange (DEX)decentralized finance (DeFi)Ethereumliquidity pool (LP)
spellingShingle Hyoungsung Kim
Hyun-Sik Kim
Yong-Suk Park
Perpetual Contract NFT as Collateral for DeFi Composability
IEEE Access
Automated market maker (AMM)
blockchain
decentralized exchange (DEX)
decentralized finance (DeFi)
Ethereum
liquidity pool (LP)
title Perpetual Contract NFT as Collateral for DeFi Composability
title_full Perpetual Contract NFT as Collateral for DeFi Composability
title_fullStr Perpetual Contract NFT as Collateral for DeFi Composability
title_full_unstemmed Perpetual Contract NFT as Collateral for DeFi Composability
title_short Perpetual Contract NFT as Collateral for DeFi Composability
title_sort perpetual contract nft as collateral for defi composability
topic Automated market maker (AMM)
blockchain
decentralized exchange (DEX)
decentralized finance (DeFi)
Ethereum
liquidity pool (LP)
url https://ieeexplore.ieee.org/document/9967987/
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AT hyunsikkim perpetualcontractnftascollateralfordeficomposability
AT yongsukpark perpetualcontractnftascollateralfordeficomposability