On Fractal Fridays, we like to get a bit funky, and this Friday may be so funky we lose us all our followers and get booted from social media.
As Curve maxis, we’ve historically dismissed NFTs. Yet there’s no mistaking the fact that NFTs are running hot, with 64% preferring NFT Summer 2021 to DeFi Summer 2020.
After all, if you went into NFTs, urine the money!
Staring longingly at the beautiful new Curve Factory UI, we were pondering if there was a possibility to get Curve involved in the NFT game. We’re still pretty far away from that day though.
It would first require an ERC-721 to get wrapped as an ERC-20 (imagine synthetic cryptokitties == sCAT). Then a competing wrapped ERC-721 would have to be created (ie REN creates renCAT).
Once crypto-kitties got tokenized as both sCAT and renCAT, one could permissionlessly create a kitty pool allowing users to stake tokenized cats and even earn rewards by trading between sCAT and renCAT.
There’s not necessarily any good reason to do this, except to see the look on the kitties faces when they’re tossed into the pool.
Clearly, we’re pretty far from this day.
The first barrier, is why would anybody wrap an NFT into a fungible ERC-20 token? NFTs exist precisely because people wanted to make ERC20 tokens less fungible. Since each NFT may have a different value based on its different properties, why would anybody strip them of their individuality and render them fungible?
Nonetheless, we could imagine scenarios where it’s useful. Imagine you own the worst EtherRock. 92 is currently the lowest priced:
Yuck. Hideous. Such amateurish shading. Compare/contrast with the gorgeous EtherRock 70, the most expensive rock sold to date:
Looks rare! Definitely worth keeping unwrapped.
Since the owner of 92 got suckered into a vomit rock, they have nothing to lose by wrapping their NFT into an ERC-20 token. If nobody else wraps, then there is exactly one ERC-20 $ROCK token, they can unwrap and get their ugly rock back. No downside.
Now imagine somebody creates some sort of DeFi offering, where users can stake their ERC-20 wrapped $ROCK and earn rewards in the form of $MOSS. Suddenly, the owner of 92 is feeling pretty good! Their rock is now gathering $MOSS, and the owner is on a roll. Perhaps these rewards even bump up the floor price a bit on rock 92.
Now imagine that due to the effect of this DeFi offering, suddenly the ERC-20 wrapped $ROCK price exceeds the price of what was the second lowest priced NFT. Now the owner of the second worst rock decides to also wrap their rock to earn that $MOSS, since they are now the rock floor.
Rinse and repeat, and suddenly the owners of the lowest strata of Ether Rocks all decide to wrap their tokens. They can all unwrap at any point to receive one of the bottom tier NFTs back, or they can just enjoy the benefits of a highly liquid ERC-20 $ROCK.
So, it’s mostly just a silly thought experiment at this point. But it would be practically quite easy to create. I’ve created a sample repository using Vyper to prove the concept is viable. Simply deploy it against any ERC-721 token to wrap, trade, and unwrap their NFTs and ERC-20 tokens. The tests demonstrate using it with Pudgy Penguins, but it should work with any ERC-721 compliant token.
Of course, I did this in a couple of hours, so it’s not terribly stress-tested. If you wan to launch it on mainnet it needs a lot more scruity. As I’m not a big NFT collector, this may already exist for all I know. Or maybe it needs different endpoints to make this useful. If nothing else, a production instance would benefit from a simple factory contract that could be used for deployment and tracking which ERC-721 contracts had already been wrapped.
Still, as a proof of concept, enjoy! If you think this has legs and want to work together on making this a real thing, feel free to hit me up. Or fork it yourself: https://github.com/zcor/erc721to20
If this happens, we’re one step closer to the dream of NFT pools on Curve…
For more info, check our live market data at https://curvemarketcap.com/ or our subscribe to our daily newsletter at https://curve.substack.com/. Nothing in our newsletter can be construed as financial advice. Author is a $CRV maximalist and owns less than a half dozen NFTs.