CryptoPunks as collateral? How Chainlink and JPEG’d are doing just that
A new merge sees Chainlink’s price feeds being used for an NFT collateral service.
Chainlink price feeds would be used to power DeFi services on JPEG’d, a lending protocol that enables NFT holders an opportunity to obtain credit on their assets while still retaining ownership of them.
Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. The protocol currently secures tens of billions of dollars across DeFi, insurance, gaming, and other major industries.
Turning to Chainlink
As per a release shared with CryptoSlate, JPEG’d is merging the time-tested Collateral Debt Position (CDP) model with NFT collateral to enable a new DeFi primitive called Non-Fungible Debt Positions (NFDPs). Though JPEG’d, users will be able to mint a decentralized stablecoin called PUSd that is fully collateralized by their NFTs.
Like all lending and borrowing platforms, upholding the solvency of the platform requires a secure decentralized oracle solution to accurately price the NFTs used as collateral. Due to their unique non-fungibility, the nature of NFT liquidity (or often lack thereof) is different from fungible ERC20 tokens.
To bridge the two ecosystems, JPEG’d is working with Chainlink to launch a custom decentralized oracle solution for pricing NFT assets, starting with CryptoPunks.
This Chainlink Price Feed will be foundational to the JPEG’d platform, which serves as a new DeFi primitive that allows users to leverage their existing NFTs as collateral to obtain loans, all in a trust-minimized and permissionless manner.
How it works?
For the initial integration, the Chainlink Price Feed will quantify the Time-Weighted Average Price (TWAP) of both sales and floor prices to create a blended price that will be used to value floor punks. This oracle excludes wash-sales, outliers, and will be periodically written on-chain by Chainlink’s network of decentralized Node Operators.
Using a TWAP helps mitigate outlier events by taking the average of multiple sales over a predefined period of time, making manipulation significantly harder and expensive to pull off.
Additionally, by only tracking the average price of the lowest-priced floor CryptoPunks (in other words everything but apes, aliens, and zombies), the protocol can help prevent the issue of users borrowing more in funds than their NFT is actually worth.
This helps to resolve the issue of variable pricing for different NFTs in a collection by using the least common denominator. More details to be provided at launch.