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Splitting Non-Fungible Tokens into Share$ featuring NFette
January 21, 2021
How to create token shares from your unique NFT and applying a bonding curve to set your token price

January 21, 2021

Anzette Muntingh& Paula Pettit

Splitting Non-Fungible Tokens into Share$ featuring NFette

How to create token shares from your unique NFT and applying a bonding curve to set your token price

7 min read

Art, NFTs, and how art can be turned into NFTs, have been one of the most buzzed-about topics in the Defi space recently. While it seems an unlikely duo and a mix of two very different worlds, the intersection makes more sense than one might initially imagine. In this article, we're going to discuss what NFTs are, why they change the game for digital art, and walk-through one of our most recent tools that we developed for merging the two.

Non-Fungible Token

For starters, NFT stands for Non-Fungible Token. For those who are familiar with financial terminology, “fungible” means that items are easily interchangeable with each other and are considered identical for practical purposes.

Fungibility is most often used when referring to money. For example, one $20 bill is identical to and easily exchangeable with another $20 bill.

The same can be applied to all popular cryptocurrencies - at any time, one bitcoin can be exchanged for another bitcoin because they are considered the same in value.

By making an item non-fungible, we are specifically calling out that this item cannot be easily interchanged for a similar item for an identical value. Examples of non-fungible tokens (NFTs) are crypto kitties, digital baseball cards, digital art, tickets etc. While these items may seem similar to each other (one baseball card may look similar enough to another), they can have vastly different prices attributed to them for a variety of reasons. This makes them impractical as any form of currency and more logical when representing a digital good.

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Source:https://blockchainhub.net
So why do NFTs matter for digital art?
Just like cryptocurrencies, NFTs cannot be forged, duplicated, or otherwise tampered with. This makes them perfect to prove authenticity, especially when they change ownership.

Up until blockchain, it was easy to duplicate and disperse any digital item, rendering collectable and rare digital goods impossible. However, thanks to the immutable and transparent blockchain, for the first time ever, digital art can be provenly scarce and protect its value from a quick copy-paste.Besides protecting art from the dangers of piracy, by uploading art to the blockchain, artists can now open their doors to a whole myriad of tools never before made available to them.

Some of these benefits include:

  • Easy transfers and authorised sales
  • Fundraising
  • Market creation
  • Even limited-time ownership

The sales in the digital art space seem to agree with the hype. While still new, digital “crypto art” sales just hit an all-time high with $8 million in sales in December 2020. This number will surely continue to rise as artists get comfortable with the developments and more tools are created with them in mind.

We at Linum Labs are obviously passionate about the blockchain and DeFi space. However, we also have a portion of our team with a background in digital art, making this intersection all the more exciting for us. To partake in this evolution, our team created NFette.

Welcome to NFette

Dreamed up by the team during EthOnline hackathon in 2020, NFette is an Automated Market Maker (AMM) Factory that allows artists to easily sell tokens to raise funding for their artwork. Artists can raise funding on both existing artworks as well as future art by encouraging their fans to buy shares of their artwork (using the token appropriately named $SHARES).

The goal of NFette was to make setting up an AMM as easy as possible regardless of what your knowledge is on NFTs. Like the heading says, NFette enables artists to virtually define the value of what is theirs.

The rest of this article will be a step-by-step walkthrough of the NFT launch process. The landing page below lays out the easy steps you'll have to complete. You've already done all the hard work; we will make the rest easy.

NFette Introduction (V1.2 Linum Labs 2020-1)

1. Initial Token Setup

In honour of medium.com, I've created a token in their name to show how easy it is to use the AMM factory. As one can assume, the name of the NFT would be the title of the artwork - in this case, Medium. Next, the user would choose a symbol for the NFT that represents the title and follows the ERC-20 naming convention.

Examples are MKR for Maker, USDC for USD Coin, etc. Feel free to get creative. After all, you are an artist. Lastly, you'll need to add a URI that links to your digital artwork.

NFette Step 1. A user can create their own NFT

2. Set Your Initial Share Price & Accepted Collateral

This next part allows you to choose which tokens you will accept as payment for your shares. You can choose between DAI, USDC, and ETH. When launching your NFT, Nfette will create a market for your artwork whose price is algorithmically set by a bonding curve. If you'd like to learn more about bonding curves, please check out our article.

The bonding curve essentially allows artists to algorithmically set how the price will grow as $SHARES of their artwork are purchased. In our interface, the artist can choose between sub-linear, polynomial, and linear growth.

Artists can then set their initial price to determine where the curve starts. This could increase exponentially depending on the bonding curve you choose next, so it would be wise to not start too high. By choosing your maximum token supply, you set its scarcity. The fewer tokens you make available, the more expensive a share may end up being in the long run.

For the purpose of this walkthrough we have set our initial price to 3 DAI and a maximum of 50 tokens would be released for circulation.

NFette Step 2. A user can decide what price and collateral type whey want to accept for their NFT Market

3. Decide On A Bonding Curve

You are then provided with a smart contract address that records all your transactions. This contract holds the mathematical equation related to the bonding curve you chose and will provide the token price each time someone wants to purchase one of your tokens. It also holds your unique NFT of which you are the creator and owner.

NFette Step 3. A user can determine what pricing structure they would want to employ for their NFTMarket

Voila!

And that's it! You have successfully added a bonding curve to your NFT. You'll now be able to share your contract address with followers who wish to support you in your endeavours. Following the 'View Market' button would lead you to a platform where the actual transactions would occur. You would be able to post this link to your preferred social media platform to help your fans support your next one-of-a-kind creation.

NFette Final result. The user now has a new bonding curve address for their NFT Market

Conclusion

As NFette is still a work in progress we aim to make this a usable tool for the public in the coming weeks. We'll be releasing our work with an exclusive NFT event of which details will soon be shared. Until then, watch this space.

If you'd like to learn more about NFTs, bonding curves, or any other one of these crazy DeFi tools, we'd love to hear from you and discuss!

Feel free to book a free 30-min consultation here. We've built dozens of DeFi applications for our clients and would be happy to explore your next idea.