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    • 🖼️Index
      • Buying Fungify NFT Index
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  • Redemptions
  • Chainlink VRF
  • Avoiding Value Leaks
  • Free Optionality
  • Beta Preservation
  • Pricing
  1. Protocol

Redemption Mechanic

PreviousOracleNextPools

Last updated 8 months ago

The 🖼️ is fully backed by NFTs in the 🔓; it can be burned in exchange for the NFTs contained within. This allows for two-way arbitrage of the peg since 🖼️ can also be minted by a 👨‍💼 depositing NFTs into the MarketVault.

Redemptions

Each collection contained within the vault has an associated floor price which is frequently updated by the Oracle mechanism. To call the redeem() function, a redeemer must pay a number of 🖼️ equal to the highest value floor of any given NFT collection within the 🔓. At the end of the redemption process, the redeemer receives the difference between the value of the NFT obtained and the amount input.

Multiple redemptions can be issued in a single batch call if sufficient 🖼️ is provided.

Chainlink VRF

The is a provably fair and reliable random number generator. It is funded via LINK tokens provided by the DAO through a subscription account. When redeem() is called, the protocol escrows the 🖼️ of the redeemer and makes a call to the contract to provide randomness. This randomness is used to determine which NFT is redeemed from the vault. In a separate transaction, executes the callback function fulfill(), providing the random number and transferring a random NFT to the redeemer.

Avoiding Value Leaks

Free Optionality

Random redemption avoids the problem of providing free optionality to arbitrageurs. If participants redeeming 🖼️ were allowed to select any NFT for redemption, they could preferentially select those which have increased in value while avoiding those that have decreased relative to $NFT, siphoning value from the 🔒.

Beta Preservation

The beta of an asset is its correlation to the overall market. The volatility of an optimal NFT index will map to the overall NFT market, i.e., (β𝑖_𝑖i​=1). By preventing individuals from preferentially removing specific NFTs, this allows the index fund to maintain a collection representative of the overall market, allowing its volatility to track the broader market. Hence, random redemption preserves the beta of the index.

Pricing

The price for redeeming a particular NFT is the average floor price of NFTs of the same collection at the time they entered the 🔒 plus the spread. The the amount of 🖼️ required to invoke a redemption is the highest of all such average collection prices with the 2.5% spread and a 2% buffer applied on top. The buffer is meant to mitigate against insufficient funds causing issues as a result of price rises from new NFTs entering the 🔒 before processes the callback.

🎰
NFT Index Token
MarketVault
NFT Index Token
Seller
NFT Index Token
MarketVault
NFT Index Token
Chainlink VRF
NFT Index Token
Chainlink VRF
Chainlink VRF
NFT Index Token
MarketVault
MarketVault
NFT Index Token
MarketVault
Chainlink VRF