Integrating NFTs / ASAs with DeFi: Exclusive Farming Programs and Liquidity Pools
(This proposal can also be read at: Tinyman Proposal)
Abstract
This proposal primarily aims to contribute to Algorand’s DeFi and NFT ecosystems, and secondly to the mass adoption of Algorand. By introducing Exclusive Farming Programs on Tinyman, accessible only to holders of selected NFTs/ASAs, this initiative could seamlessly connect and strengthen the DeFi and NFT ecosystems, uniting Algorand investors and collectors. It also offers brands a novel entry into the blockchain space, and provides event organizers with more valuable rewards for their attendees.
Initially presented to Tinyman governance, this proposal requires adoption by Algorand Governance for full implementation. With the required approvals, Tinyman could receive additional incentives by securing a portion of those directed to the NFT ecosystem, which would not negatively impact current farming programs. This ensures that the existing incentives for current DeFi investors remain unaffected while also fostering growth in the NFT ecosystem and further growth in DeFi, potentially being a powerful and clever way of directing NFT incentives.
Objective
- Attract new investors to the DeFi market, increasing the overall TVL of Liquidity Pools.
- Increase the value of already existing and future NFT collections on Algorand by enabling new incentives and utilities for NFT collectors to hold and keep investing in their favorite projects / creators.
- Support artists by enhancing the value of their collections.
- Leverage ALGO price action during the expected bull market by pioneering a seamless integration of DeFi and NFT ecosystems.
- Enable a new way for brands, project owners and event organizers to further promote their initiatives through blockchain technology, on Algorand.
- Enhance the connection between the physical world and metaverses through a new blockchain integration / product.
- Promote greater activity within the Algorand ecosystem.
Background
The rapid growth of decentralized finance (DeFi) and NFTs (ASAs) has created new opportunities for digital ownership and investment. However, the integration of these two ecosystems remains underexplored. Algorand, with its innovative blockchain technology and supportive community, is poised to lead this integration.
This proposal stems from the observed demand for products that combine the benefits of DeFi and NFTs. NFT collectors seek greater utility for their assets, while DeFi investors look for new yield opportunities. By creating exclusive farming programs for NFT holders, this initiative addresses these needs and enhances the overall utility and value of NFTs, without affecting current DeFi investors.
The necessity for this proposal is driven by:
- Market Demand: Integrating DeFi and NFTs meets the growing demand for combined benefits.
- Enhancing NFT Utility: Linking NFTs to DeFi programs provides collectors with additional incentives.
- Strengthening Algorand: This integration attracts more users, increases liquidity, and solidifies Algorand’s position as a blockchain innovator.
- Supporting Creators: Artists can monetize their work with more stability and engage their community through exclusive farming programs.
This initiative aims to create a more interconnected and robust Algorand ecosystem, benefiting all stakeholders involved.
Details
(Potential Outcomes and Product Opportunities)
1. Exclusive Farming Programs:
1.1 Collector-Exclusive Programs: Development of Farming Programs that are accessible only to holders of:
- At least one NFT from each collection within a curated list, OR
- Any NFT from a specific collection, OR
- Any NFT from a broader list of selected collections.
- Artist and Creator Involvement: Allows artists and creators to contribute to the rewards pool by allocating a portion of their sales revenue to these exclusive farming programs and/or by engaging their collectors through events that offer attractive prizes for top contributors.
- Collabs: Similar to existing “missions” that require NFTs from collaborating collections, artists can join forces to enhance the reward pool of exclusive farming programs. Participants can access these programs by meeting specific conditions, such as owning one NFT from each collaborating collection, or one NFT from any collection in the collaboration. This encourages cross-community engagement and increases the overall value of the rewards.
- Proportional Rewards: Rewards can be proportional not only to the amount of LP tokens but also to the number of NFTs meeting the criteria of each Exclusive Farming Program. Alternatively, rewards could still be proportional solely to the amount of LP tokens. Both options could be available to Farming Program creators, who could use polls to let their collectors decide. This kind of feature can and should be better polished by the community in order to define if it would be better to add or not.
1.2 NFT Airdrops and Distributions: Beyond Collector-Exclusive Programs, Exclusive Farming Programs accessible only to owners of distributed NFTs could incentivize the development of more sophisticated tools to facilitate NFT airdrops and distributions for rewarding event attendees, participants in Algorand discussions, or buyers of physical and digital products, utilizing methods like QR codes and other available technologies to ensure convenient access for the qualified individuals.
Duration of Exclusive Farming Programs: Due to the nature of these programs, it is expected that the farming period should be shorter than traditional farming programs. This allows for more dynamic participation, keeps engagement high, and provides frequent opportunities for new participants to benefit from the incentives. Additionally, shorter periods help adapt to the relatively lower total pool rewards to be distributed from each farming program, in order to accommodate a higher number of Farming Programs related to various NFT collections and event-related airdrops that could exist concurrently. If current programs usually have 3-month periods, exclusive ones could last from one to two weeks (1-2 weeks).
2. Community Governance:
- Involve the community, including both collectors and non-collectors, in selecting the NFT collections and exclusive programs eligible for incentives provided by Algorand. This ensures that community interests are at the forefront of decision-making.
- Allow anyone to promote exclusive farming programs, provided they meet a minimum value of tokens to be distributed. This value, initially defined in USDC or ALGO, can be adjusted through community votes.
- Enable Tinyman token (TINY) holders to vote on proposals for new Exclusive Farming Programs promoted by Tinyman, additional incentives, and the possible creation of Exclusive Liquidity Pools, thereby enhancing the value of voting power and increasing TINY’s value.
- Collaborate with Algorand xGovs to ensure that this proposal aligns with the broader Algorand Governance process and receives approval for full implementation.
3. Future Development of Exclusive Liquidity Pools:
- Concept of Exclusive Liquidity Pools: In the future, it could be interesting to explore the possibility of creating liquidity pools specifically for NFT collectors and owners. These pools, accessible only to those owning NFTs from selected collections or distributed at events, would have exclusive farming programs attached and could also have limited periods, maintaining the dynamic nature of these initiatives.
- Market and Community Feedback: It is absolutely necessary to gather market response and community feedback to determine the optimal conditions for introducing these exclusive liquidity pools, ensuring they enhance the NFT and DeFi markets on Algorand without adversely affecting non-collector investors.
Challenges and Considerations
Technical Complexity:
Ensuring seamless integration between DeFi and NFT ecosystems may require significant development efforts and technical expertise:
- Creating secure and efficient smart contracts to manage the exclusive farming programs and liquidity pools.
- Developing an intuitive and user-friendly interface for community members to create exclusive farming programs. This process demands valuable time and resources, which presents a challenge in balancing the implementation of this proposal with other high-priority initiatives.
Community Engagement:
Getting approval on Algorand Governance for full implementation of the proposal, especially because of the usage of part of the incentives for exclusive farming programs, could lead to misinterpretations from both sides:
- Investors that are non-collectors could wrongly understand that the proposal would require the usage of part of the incentives that go to non-exclusive liquidity pools, to exclusive pools that they wouldn’t initially have access to.
- Collectors and NFT marketplaces could wrongly understand that the proposal is about lowering the incentives to the NFT ecosystem and giving them to DeFi, which already receives the majority of the incentives.
Considerations:
- Technical Complexity might be less discouraging than it initially appears, considering that AlgoKit is now available, potentially simplifying the development process. It would be valuable to gather opinions from developers on this topic, as I lack the expertise to confidently assess it myself.
- Community Engagement, particularly if this proposal garners significant interest from Tinyman’s governors and is brought to Algorand Governance, should be proportional to the clarity and transparency of the proposal. Simplifying the proposal and the initial implementation could increase the chances of gaining more votes, but this simplicity should be balanced with the necessary features that need to be present from the first launch. It is crucial to discuss and agree on these necessary features beforehand, within Tinyman governance, to ensure a successful and well-supported rollout.
Benefits
- For the DeFi Ecosystem: Attracts a diverse range of investors from new and unexplored areas, increasing overall liquidity volume (TVL). This, in turn, strengthens the price action of ALGO and its ecosystem tokens (ASAs).
- For NFT Collectors: Enhances the value and utility of their NFTs by providing new incentives for holding and keep investing in their favorite collections.
- For Artists and Creators: Boosts the recognition and value of their collections and community, offering improved potential for economic sustainability and supporting the viability of full-time dedication to their projects.
- For Brands and Project Owners: Provides a novel approach to engage with blockchain technology, paving the bridge between physical and digital worlds (metaverses) and fostering innovative promotional opportunities.
- For Event Organizers: Introduces a unique method to reward engagement and promote Algorand through NFT airdrops and secure access to exclusive DeFi products.
- For Algorand / ALGO:
Strengthened Competitive Position: Positions Algorand as a pioneer in seamless DeFi-NFT ecosystems integration, further differentiating it from other blockchains and potentially attracting more developers, projects, collectors and investors. This enhances Algorand’s position as a blockchain, driving higher demand for ALGO.
Enhanced Ecosystem Activity: Promotes greater activity within the Algorand ecosystem, contributing to increased overall network utilization and growth.
Metrics for Success
Participation and Engagement:
- Participation Rate: Track the number of participants in exclusive farming programs to gauge community involvement and interest. This includes monitoring both the overall number of participants and the growth rate over time.
- NFT Engagement: Measure the number of NFTs utilized in exclusive farming programs, indicating the level of NFT holder participation and integration. Additionally, track the number of wallets participating in these programs and identify the NFT collections enabling their participation. This helps assess the engagement power of each collection, revealing which collections drive the most involvement and identifying the collectors who are most engaged with these collections.
Liquidity and Rewards:
- Liquidity Growth: Monitor the increase in total liquidity (TVL) in the liquidity pools where exclusive farming programs are added, reflecting the financial impact and attractiveness of these programs.
- Reward Distribution: Track the total rewards distributed through exclusive programs to evaluate the effectiveness and appeal of the incentives offered.
Community and Ecosystem Impact:
- Community Feedback: Collect and analyze satisfaction and feedback from participants and the broader community to ensure the proposal meets their needs and expectations.
- Governance Support: Track the number of governance votes and the level of support for the proposal to measure community endorsement and alignment with broader Algorand goals.
- Ecosystem Impact: Evaluate the overall impact on the Algorand ecosystem, including the adoption rate of NFT collectors and DeFi users, to determine the proposal’s contribution to Algorand’s growth and sustainability.
Budget and Funding
Initial Development:
To kickstart the proposal, Tinyman’s developers would need to allocate time and resources for the development of the exclusive farming programs. The budget for this development will be proportional to the complexity of the initial implementation, so keeping the initial implementation simpler can lower the required efforts and budget. Developers should be compensated for their efforts to ensure high-quality implementation. Additionally, community members with relevant skills may contribute by collaborating with Tinyman’s devs, which could further enhance the development process.
Ongoing Funding:
Once implemented, funding for exclusive farming programs would be sourced from:
- Artists and Collectors: Artists can contribute by allocating a portion of their sales revenue to the reward pools and by engaging their collector communities to participate.
- Event Organizers, Influencers, and Brands: They can use exclusive farming programs as a tool to boost engagement and promote their events or brands, thus contributing to the funding of the reward pools and consequently the overall TVL on the selected liquidity pools.
- Algorand’s Incentives: The exclusive farming programs could also benefit from Algorand’s Incentives, which would help support and enhance the reward pools. If approved, these incentives should be allocated based on community votes to determine which collections are included in each Algorand-supported farming program.
Conclusion
By integrating NFT collectibles and other ASAs with Exclusive DeFi Farming Programs, and exploring the future development of exclusive liquidity pools, we are advancing towards a more interconnected and robust ecosystem on Algorand. This approach benefits collectors, artists, investors, event organizers, brands, and project owners, fostering a dynamic and thriving community.
This proposal seeks initial support from Tinyman governance, followed by broader Algorand Governance approval to ensure its complete implementation and achieve its full potential. I truly believe that this proposal could play a meaningful role in advancing Algorand’s mass adoption by further highlighting the strengths of our blockchain technology and the collaborative nature of our community. Although I’m not a developer myself, I am confident that the convenient functions available within Algorand’s development resources, added to the already existing tools developed and provided by some of the briliant minds in our community, can make the proposal’s implementation feasible.
Finally, I hope this proposal sparks a fruitful and constructive debate. Thank you very much for reading through to the end!