CRΞ8R - Interview w/ Drops DAO - Loans for NFT & DeFi assets
Primer: In this episode of the CRΞ8RDAO podcast, Gabriel Haines speaks with Darius Kozlovskis, the co-founder of Drops.co, a platform where users can post their NFT as collateral to obtain trustless loans. Learn about Darius' journey into crypto and his thoughts on various subjects.
Origins Of Darius, Co-Founder Of Drops.co
Been a developer his entire life
First game he created was a web-based game. Players control a spaceship with a monkey to get points
Subsequently, he moved on to mobile app development
Started an agency to build a couple more serious projects
Heard about crypto in 2015/2016 and began exploring the space
Started a Crypto development agency in 2017. Did not have much development work to be done as most contracts were public sale contracts or token contracts
His Business
Pivoted his app development business into a crypto business
Part of his team remained. Had to hire new team members for smart contract development
After the collapse of the ICO boom, they do not have many clients left and had to downsize and think outside the box
Kept a pulse on the crypto industry while building CRM software for medical clinics in Lithuania. They had good results from this venture
In 2018, he observed that development activity has increased in the crypto space and products were being launched (e.g. Compound, Synthetix, OpenSea, etc.)
In 2020, he participated in DeFi summer
Started Node Runners where users are allowed to farm NFTs and later stake them to earn governance tokens. His project got some traction
Did not foresee that NFTs would gain traction that quickly. He expected that it would take another 1-2 years
Drops.co
A platform where users can post their NFT as collateral to obtain trustless loans
Introduction
NFTs are currently illiquid
Fractionalizing NFTs makes it more fungible and liquid. Enables NFTs to be used as collateral for earning yield
Pools will be created to accept NFTs as collateral. Users will get USDC in return and this USDC could be put in other DeFi protocols to earn yield
Initially, it would be a manual process; users have to select from their recommended list of yield protocols
In the future, they will create a vault where the process is automated
How Does Lending Work
Multiple pools, where each pool is for a particular project
UI consists of 2 sections
Supplying your collateral
Borrowing USDC
Users have to maintain their collateral factors to keep their loan solvent
Categories They Are Targeting
Collectibles
Gaming/Metaverse items
Financial NFTs (e.g. Uniswap V3 NFTs)
Pricing The NFTs
NFTs that are put up as collateral on Drops.co have to have enough trading volume and activity around them
Initially, they thought of creating fractionalized pools and having NFT indexes determine the value of these pools. However, this is not scalable
Subsequently, they looked at using the floor price of NFTs to price the NFT pools
Credit Rating Agency For NFTs
NFT Oracles to insure the price of NFTs
People in the space will experiment with NFT Oracles. Some would succeed while others fail
Approaching NFT DAOs
Gabriel suggested to Darius that he could mint a NFT that represents all the assets of the NFT DAO
From there, people could borrow against that single NFT
"I mean, the key thing here is you need community and community has value, right? So if you could make an NFT, essentially, of a community, you can loan against even that value in a way which is going even deeper. I mean, you're unlocking even more value that's like, super hidden, you know?" - Gabriel Haines
Node Runners
Thinking of extending their Node Runners project to gamify their Drops.co platform
Will have a play-to-earn model for Node Runners
Players have a spaceship and will be able to go to a planet of Drops. Supply a token to a lending pool to earn yield as well as Node Runners game tokens
Can use those game tokens to upgrade your ship and get more yield
"The future of gaming also could be in this area where players are not just isolated in their game world. Since all crypto is as composable, then different games could be built on top of other things." - Darius Kozlovskis
Value Of In-game Tokens
Approach to tokenomics is different in blockchain games compared to DeFi projects
In DeFi projects, designing the tokenomics is much easier. Have to identify how much inflation the project can tolerate. If the project has revenue, the amount of tokens the protocol can buy back from the market can be calculated
In games, one has to create as many possible use cases for the token so that it stays inside the ecosystem
Inflation rate has to be high in games to make it worthwhile for gamers. On the flipside, in MMORPGs, the value of in-game gold keeps decreasing over time as inflation rises. Hence, inflation in game economies have to be managed properly
External Value Being Brought To The Game
Not from selling game assets
Bringing external value into the game by being connected to other protocols and earning revenue in them
For example, treasury funds staked elsewhere to earn yield. Yield could be used to buy up token supply and support the price
Thoughts On Regulation
Regulation is inevitable. The only question is the extent of regulation
Contracts on the blockchain are uncensorable
Websites can be taken down but mirrors of the websites can be created
There will be a surge on hosting on IPFS in the future
EU is going to push their regulation on cryptocurrencies and NFTs within the next 2 years. Good to discuss censorship resistant platforms now
What He Is Personally Doing
Building their website on IPFS
Do not have access to user funds. Hence, regulations on firms that store user assets do not apply to them
Also depends on what clients are accepted and where the company is incorporated
What Is He Most Excited About Drops.co
Launch of the NFT lending pools by the end of the year
Hoping to have NFT vaults up soon so that actual yield farming with NFTs is possible
Design Of The Yield Aggregator
For NFTs, they cannot compound on themselves. They need a separate asset
Their vaults will be earning fungible tokens for users
Projects That He Likes
Visor Finance
Visor Finance for the active management of Uniswap V3 NFTs
When Uniswap V3 NFTs are used in other apps, there is a risk that they will go out of range and stop fulfilling their purpose
Visor Finance extends the use of Uniswap V3 NFTs
They are planning to use Visor NFTs as collateral on the Drops platform
Polygon
Have spoken to their team and followed their progress
Polygon believed in NFT gaming projects and gave grants to them. Their strategy paid off big time when NFT gaming gained traction
Anything Else He Wants To Share
To newcomers, he encourages them not to fear the volatility
There is increasing traction and people are recognizing the value that crypto brings to the world
Biggest Challenge So Far
Design of NFT lending on their platform
Went through many iterations and tried different models
Their biggest challenge now is to build a proper NFT oracle
Will They End Up Competing With Aave
Stani Kulechov of Aave tweeted that they will be working on NFTs
Darius thinks that Stani is referring to Uniswap V3 NFTs
May not even compete with Aave as they might go after different segments in the NFT market
How Can Listeners Take Action
Join their Telegram group or Discord
Join their liquidity mining program for loans
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