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Catalyst: Synthetic NFT Derivative Platform


Catalyst is a decentralized derivative platform for the financialization of the NFT asset class. Catalyst is the easiest way to invest in NFTs through the creation of synthetic derivatives that grant price exposure to a market without owning the underlying NFTs. These synthetic derivatives called cAssets track the price of NFTs being sold in a market such as art, music, video games, or even a certain creator which lowers the barrier of entry, creating liquidity, allowing for price discovery in a secondary market, and introduces a short-selling mechanism. cAssets can also be used to mitigate exposure to any single NFT through indices that are exposed to many different NFTs in a given market

What are NFTs, Derivatives, and cAssets:

NFTs or Non-fungible tokens can be thought of as property in the digital world. This digital property can take many forms such as artwork, in-game items, music/video rights, sports memorabilia, with many more use cases on the horizon. The value proposition of NFTs is still in its infancy but has proven promising for future growth.
Derivatives are a financial tool that tracks the price of an underlying asset without actually owning the asset. Derivatives can be used for a number of purposes, including insuring against price movements, increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.
cAssets are NFT derivatives that will track the value of certain NFTs in different sectors or creators, using community input and eventually governance on the best markets to have price exposure. These cAssets will be transparent in their allocations and any changes made to them will be voted in by the community by the use of Lyst tokens, these governance tokens will give a weighted vote to everyone in the community.

Current NFT Market Valuations Problem:

  • The market is highly speculative
    • Although the ecosystem is becoming more and more mature every passing day, it remains highly speculative. The current list price of NFT’s cannot be taken into account for valuation since they are purchased and placed for reselling at an inflated rate.
  • Lack of liquidity
    • Lack of liquidity in a market represents the first major difficulty in the valuation of an asset. If no comparable asset has ever been sold or if the sale was more than 6 months ago, the estimate of the current market price for the asset will be less precise.
  • NFT Diversity
    • There is not just one type of NFT, each project publishes its own NFT composed of its own characteristics and appreciation from the community. Evaluating an individual NFTs value would therefore require a knowledge of each platform and characteristics which make it unique.
  • Whales and Market Makers
    • Due to the infancy of the crypto market as a whole, Market Makers or whales are able to buy an asset at the price it is currently listed for, even if the price is far inflated from the previous sales price. These sales set precedents that can’t be ignored but cannot be viewed as normal pricing either.
  • Market size and Consistency
    • The last point which makes NFT evaluations difficult is the ecosystem and associated market remain small compared to other asset classes even in the crypto world. The market becomes even smaller when looking into the sub-segments for the industry such as art, collectibles, in-game items.

Current Pricing Mechanisms for NFTs

  • Sale Mechanism — This is traditional pricing where an NFT exchange or creator sells a piece to an individual. Large gaps in transactions and major price fluctuations make them difficult to determine a fair sales price.
  • Auction Mechanism — Most marketplace sellers and buyers actually prefer auctions for obtaining and pricing NFT’s. Auctions are suboptimal in capital efficiency terms since every dollar of valuation requires multiple dollars' worth of bidding.
  • Fractionalization Mechanism — NFT fractionalization is one method of allowing a secondary market and price discovery by lowering the barrier of entry. The challenge of this mechanism is managing the portfolio in a large universe of nonfungibles.

Advantages of cAssets

The creation of cAssets will help to address some of the current issues with NFTs as an asset class.
First, cAssets will be able to address the liquidity issue by creating different indices around sub-segments of NFTs which can be used to establish a baseline price for the market.
Second, is NFT diversity, cAssets will be able to track the price of NFT’s across any marketplace or protocol enabling exposure to a larger segment of the market eliminating the need to understand the properties of each marketplace.
Third, Market Makers or whales, purchasing NFTs and pushing the price will initially be adjusted for by using the mean value of NFT’s in a market but can later be addressed through a pricing algorithm approved by the community.
Target Users:
Although Catalyst may seem only for NFT collectors, this is not the case. Catalyst will aim to provide services to three different core users: people who understand NFT’s and the future market but are not interested in holding/purchasing any single NFT, Liquidity providers and arbitrageurs that will provide liquidity to pools and stabilize the price of DPI’s so they can earn the Lyst token, and NFT collectors that are looking to hedge their portfolio in case of a downturn in the market.

Catalyst Explained:

Catalyst will work similar to other decentralized derivative platforms such as Synthetics and Mirror. Our synthetic NFT derivatives (cAssets) will be backed by liquidity pools that will reward liquidity providers with the Lyst governance token. The Lyst governance token will provide holders with the ability to participate in votes critical to the future of Catalyst.
Catalyst will be providing the frameworks for the initial cAssets that will be voted into the protocol by the community. These cAssets will provide exposure to the largest subsegments of the current NFT market. Below are the initial cAssets the team has planned.
  • cArt: This synthetic derivative will track the value of art NFTs being sold in different art marketplaces such as Rarible and SuperRare. The value of cArt will be the mean value of all NFTs being sold in a given time period in the specified markets.
  • cMeta: This synthetic derivative will track the value of land NFTs being sold in different metaverse marketplaces such as Decentraland and SuperRare. The value of cMeta will be the mean value of all NFTs being sold in a given time period in the specified markets.
  • cDomains: This synthetic derivative will track the value of in-game item NFTs being sold in different domain marketplaces such as ENS. The value of cDomain will be the mean value of all NFTs being sold in a given time period in the specified markets.
Future cAssets
cAssets in their initial form will be simple assets that will provide the groundwork for more complicated assets to be created. The benefit of Catalyst is the flexibility to create and track the value of nearly any asset that can be thought of. This opens the door for more complex NFT futures to be implemented, for creator index funds, for an NFT500 index fund. These assets will create a financial tool for the NFT market to mature as a legitimate asset class.
How will cAssets be Backed and Maintain Value?
Catalyst will be using the graph protocol to query sales of NFTs in any given market and create a cAsset that will track it. Any cAsset created will be backed by a corresponding liquidity pool that will act as the collateral for the cAsset. Ensuring that cAssets will maintain the value that is derived from the protocol and does not deviate in secondary markets will be done through arbitrageurs. Arbitrageurs will mint/burn cAssets to take advantage of any price deviation that may occur.
Catalyst Functional Roles:
Catalyst is composed of several different functions to bring this market to fruition:
  • Mint: Anyone can mint cAssets by locking up stablecoins (initially will be Matic). The required capital is 150% the value of the asset. This function will be aimed towards arbitrageurs and NFT collectors
  • Burn: to receive the locked stablecoin collateral the cAsset must be burned. This function will be aimed towards arbitrageurs and NFT collectors.
  • Trade: cAssets are tradable on AMM exchanges such as Quickswap, for investors to buy and sell them. This function is for those looking to gain price exposure to the underlying assets.
  • Liquidity Providers: to encourage the minting of cAssets, Catalyst has introduced the Lyst token to incentivize participation in the protocol. This function is for yield farmers to bring greater liquidity to the market.
Catalyst’s Future:
The future of Catalyst will ultimately be decided by the community as a whole, so it is difficult to lay out a roadmap or goals past a certain point. The future of this market is unpredictable on where it will be in a few year's time and the protocol may shift into more abundant markets, but our ethos is simple. Catalyst aims to be the most redundantly transparent project through daily/weekly communication on everything that is being built and monthly financial reports that will hold the project accountable to the community.
Last modified 7mo ago