Euler labs
Euler labs

Euler and FloorDAO

Euler and FloorDAO

This is a piece made in collaboration with FloorDAO and Euler contributors to share the unique possibilities presented to NFTs when mixed with permissionless lending and borrowing markets.

What is NFT-Fi?

The financialisation of NFTs, while a relatively new thing, has already seen some impressive growth. This has taken off as of late due to large amounts of value being stored in largely illiquid assets that are inefficient stores of value when compared to something like ETH: you can borrow against it, you can lend it, you can stake it and so forth.

With an NFT, the utility used to simply be tied to the purchase price, and even this was handled via bidding - which contributes more to existing market inefficiency. Other applications involve real world utility such as tickets (all my homies hate ticketmaster) or joining social clubs and so forth.

NFT communities strive for efficiency, and so different protocols began to spring up offering creative fusions of existing DeFi building blocks compatible with established NFT projects. Once these really got moving users were lending, borrowing, paying in instalments, hedging and so forth.

This brings yield to an asset that previously didn’t have any. While you may snigger at the idea, you won’t snigger at the performance: 26ETH in just one month! This is against the backdrop of November's gigantic blowup (try and tell me you weren’t red in November). NFT-Fi is here to stay.

What is FloorDAO?

In their own words: FloorDAO is an NFT-Fi protocol that uses DeFi to generate yields from its treasury of blue chip NFTs. The DAO regularly votes on which collections to accumulate and in 2022 swept 8 NFT collections.

How do Euler and FloorDAO fit together?

As it stands, FloorDAO is earning yield on 7 different collections. This has the advantage of a) bringing yield to FloorDAO on otherwise dormant assets and b) enabling speculators to long and short different NFT floor prices. This furthers FloorDAO’s goal to deepen NFT liquidity driving further activity and helps Euler by driving more demand to the protocol.

Euler is a unique lending and borrowing protocol: any asset can be supplied and borrowed. Unlike other protocols in the space, it is open to any asset that can be put into an ERC-20 standard. No governance approval is required and the risks that this entails are by default managed by conservative smart contract code.

As it stands, Euler and FloorDAO are already interfacing with each other thanks to FloorDAO’s tokenization of 40 Milady Maker and 1.5 CryptoPunk NFTs which were then deposited. Since then, users have been longing and shorting miladys constantly.

While it’s clear that  CryptoPunk NFTs (being largely considered to be held by “OGs” who have been in DeFi since the start) have seen some good lending and borrowing activity, Miladys are catching up fast in terms of activity and may even supercede them in terms of creativity. Will miladys steal the crown for the most innovative DeFi pfp? Do I even need to draw attention to the famous financial literacy of Ape holders?

Breaking: milady

How do I long and short NFTs on Euler (alternatively how do I demonstrate my financial literacy as a self-proclaimed OG)?

It’s quite straightforward to prove that OG CryptoPunk users are financially literate using Euler. To begin, supply some collateral to Euler. This will depend on whether or not you are long or short on CryptoPunks.

You are as ever subject to liquidation. This wallet was, and so is the first Milady liquidation of 2023. For an overview on liquidations please see this here.

How one might long a CryptoPunk on Euler

To view the PUNK market, see here.

This can be achieved in the following way:

  • Supply any collateral to Euler and then borrow a USDC stable asset (or indeed any asset that you think will appreciate less than your PUNK, such as ETH) like USDC.
  • Swap the asset that you’ve borrowed and buy an equal amount of PUNK. This can be all handled inside the Euler finance app transaction builder, which uses 1inch.
  • If the PUNK has appreciated in value say 1.5x, you can repay the USDC loan which you earlier took to finance the PUNK swap.

The increased PUNK price means you earn profit. You keep the difference, though this is only if the value of PUNK increases. Be mindful that if PUNK decreases the value of your USDC borrow will not - you have lost money here. Note also you’ll be paying some interest on the loan.

How one might short a CryptoPunk on Euler

It could be essentially the same, but in reverse.

  • Supply any asset, but this time borrow PUNK against it.
  • Sell the PUNK for an asset you believe will appreciate in value against the PUNK,
  • Once the PUNK decreases in value enough for you to be satisfied, close the short by buying back the same amount of PUNK. You keep the difference once more.

In doing so, you might prove to your rival NFT community you know your way around a trade.

As ever, none of this constitutes financial advice and only you or your financial advisor can tailor your market activities to your risk profile. Consider how that conversation might go (lol).

The future?

NFT financialisation is here to stay. While there’s yield to be earned and floors to be raised, FloorDAO will continue to do this. Without spilling too many juicy details, FloorDAO is looking to completely rebuild their protocol and introduce veFLOOR which will allow new collections into the portfolio and give holders the ability to direct liquidity and treasury yield to their preferred collections. Euler contributors, on the other hand, are currently working on Baby Euler where anyone can spin up a lending and borrowing pool as and when they please. Combine the two and what do you get?

This content is provided by Euler Labs, Ltd., for informational purposes only and should not be interpreted as investment, tax, legal, insurance, or business advice. Euler Labs, Ltd, is an independent software development company.

Neither Euler Labs, Ltd. nor any of its owners, members, directors, officers, employees, agents, independent contractors or affiliates are registered as an investment advisor, broker-dealer, futures commission merchant or commodity trading advisor or are members of any self-regulatory organization.

The information provided herein is not intended to be, and should not be construed in any manner whatsoever, as personalized advice or advice tailored to the needs of any specific person. Nothing on the Website should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any asset or transaction.

Euler Labs Ltd, does not represent or speak for on or behalf of Euler Finance or the users of Euler Finance. The commentary and opinions provided by Euler Labs Ltd., are for general informational purposes only, are provided “AS IS,” and without any warranty of any kind. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable at the time of publication.

All content provided is presented only as of the date published or indicated, and may be superseded by subsequent events or for other reasons. As events markets change continuously, previously published information and data may not be current and should not be relied upon.

Keep up to date

Euler Newsletter

You can unsubscribe at any time. Privacy Policy.