How Does OpenSky Work?
NFT stakers send their NFT to the OpenSky protocol where it is staked into a smart contract which initiates the creation of a market that utilizes an automated market-making (AMM) algorithm based on bonding curve technology to generate a real-time market value for the locked NFT. The NFT staker has the option to choose between two bonding curve models:
  • S-curve model -This dynamic bonding curve starts with very a attractive token price which attracts early adopters who hope to earn large capital gains from subsequent buyers driving the price up to a high plateau where marginal trading has minimal effect on price. At this point, the early buyers will be in an advantageous position with large unrealized capital gains. The defining feature of this model is that price changes can be quite volatile at different points on the S-curve. In other words, it is a high risk/high return pricing model suitable for aggressive traders who are aiming to earn sizable capital gains on the token price appreciation, above and beyond a proportional share of the trading fees and interest income.
  • Constant price model – This stable bonding curve ensures that all tokens will be stable in price and only the quantity of tokens changes as tokens are minted or burned. In this market, LPs need not worry about losses from price changes and will benefit solely from trading fees and interest payments from NFT-staked loans. This bonding curve model is low risk/moderate return. Since the price is stable by design, LPs forego the upside price potential in return for not having to worry about downside risk.
Liquidity providers (LPs) play a major role in establishing the market value for the staked NFT. We expect two classes of LPs to emerge as key players in the OpenSky ecosystem. LPs with relatively low risk appetites will prefer the zero-price risk and steady fee-based returns of the Constant-price model. Aggressive LPs, on the other hand, will be attracted to the high capital growth potential offered by the S-curve model, as early token buyers have a significant opportunity to earn big capital gains as additional buyers enter the market. These LPs will also enjoy trading fees and interest income but are primarily motivated by potential token price gains.
Last modified 5mo ago
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