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Pilgrim Overview & Concepts
Pilgrim is a trading and valuation protocol for illiquid assets (e.g. NFTs, DeFi positions, credit, membership, real estate, DAO shares, etc) that implements continuous price curves for such assets, without manually managing market liquidity or fractionalizing the underlying illiquid asset into fungible shares.
Pilgrim differs from any other AMM implementation in the sense that it does not require underlying liquidity for trades to be made. Rather, we depend on the concept of liquidity-as-collateral: when there is more demand for a particular asset, we mint more shares with the corresponding liquid assets provided as collateral, and vice versa. This allows for incredibly efficient, flexible, and composible on-chain market constructions that allows for atomic valuation and trading of any asset type, regardless of liquidity -- consistent with Vitalik's original proposal for
xykautomated market makers, which was based off of prediction market models.
Listing an asset with Pilgrim involves locking the corresponding ERC-721 non-fungible token to Pilgrim's smart contracts. This token could represent anything, as long as its interfaces are complaint with ERC-721 or equivalent non-fungible token (NFT) implementation.
Once a lister locks an NFT with Pilgrim, the protocol creates a new
PilgrimPair, of which has two separate interfaces: rounds and metaNFTs.
metaNFTs are minted to the lister, which represents a bonded position of the locked NFT; think of staking derivatives or Uniswap liquidity tokens, except for NFTs. Minted metaNFTs for a
PilgrimPairhave the following properties:
- metaNFTs make a reference to the metadata of its underlying NFT, with
PILMETAamended as a prefix.
- metaNFTs could be freely transferred, or be traded at a predetermined price based on its corresponding Pilgrim pool's liquidity.
- Only the owner of the metaNFT may initiate a full buyout (i.e. LBP liquidations) of its corresponding Pilgrim pool and reclaim the locked NFT. For details regarding metaNFT buyouts, refer to the Valuation & Trading Algorithm paper.
- The owner of the metaNFT receives trading fees from its corresponding
PilgrimPair, as well as Pilgrim token (PIL) incentives.
- Third party developers may integrate with Pilgrim's smart contracts to grant metaNFT holders equivalent or similar levels of functionality with its underlying NFT, allowing them to let their NFT be actively traded while gaining access to its features at the same time.
Rounds are minted to traders, of which are actors who deposit liquid tokens (base assets) to a
PilgrimPairto bet for or against a given NFT's value. Minted rounds have the following properties:
- Rounds are NOT ERC-20 complaint; while ownership information of rounds are freely queryable on-chain, they cannot be freely transferred to another account. However, third party developers are free to wrap state for a round or multiple Pilgrim rounds to mint ERC-20 complaint tokens of their own.
- Rounds are newly minted when a trader buys rounds for a particular NFT (equivalent to providing liquidity to a
PilgrimPair) , and are burnt when a trader sells rounds back to its underlying base token. Rounds may only be traded at an AMM-determined round price, which exposes round traders and holders to financial gains or losses.
- All rounds may only be bought or sold against a specified base token, which are ERC-20 complaint tokens that is decided upon
PilgrimPairdeployment. Only three base tokens are whitelisted on protocol launch: WETH, USDC, and PIL.
- Round holders are rewarded with Pilgrim token incentives based on: (i) the time of which a round holder has been owning their position, (ii) how much liquidity this holder has deposited relatively against this
PilgrimPair's liquidity, and (iii) how much liquidity this
PilgrimPairholds against total liquidity locked with Pilgrim. metaNFT owners and round holders for a
PilgrimPairwith PIL set as its base token are subject to additional PIL incentives; for details, refer to the Tokenomics section.
- Round holders and metaNFT owners may be rewarded by third party developers with their own incentive mechanisms for encouraging community value coordination.
Pilgrim extends upon the standard
xykAMM curve implemented with Uniswap with a dynamic liquidity provision mechanism. More specifically,
- there exists a minimum unit of trade execution; all trade sizes are generalized to multiples of a unit, and therefore are treated as repetitive trades of size
- a single trade unit, denominated as
K, includes virtual liquidity provision and trades at once. this is mathematically generalized to express all cases where trade size equals multiples of
nK. for details, refer to the White Paper.
Anyone may bid to pay the current spot price of the locked NFT, and reclaim (unlock) it from a
PilgrimPair, thus delisting the pair completely from Pilgrim Protocol.
There exists a buyout bidder queue per
PilgrimPair, similar to Compound or MakerDAO liquidations. Only the metaNFT owner has the right to approve one and only one bid that exists on the bidder queue for this Pilgrim pool that: (i) has a higher valuation than the current spot price set by the Pilgrim trading protocol, and (ii) has the lowest bid timestamp value.
metaNFT owners do not have the right to choose from multiple bids.
Funds accepted from a full NFT buyout is distributed to the metaNFT owner and round owners at a predefined ratio. For details, refer to the Valuation & Trading Algorithm paper.
This buyout bidder queue inherently affects round pricing, and vice versa; this creates a circular speculative relationship that helps determine an NFT's adequate market value.
Buying a metaNFT does not delist a
PilgrimPair, unlike the case with a full NFT buyout. Instead, it only transfers certain rights over a
PilgrimPairpool (i.e. trading fees, the right to accept buyout bids, etc.) and any metaNFT-specific feature integrations that comes with it, if any.
On a metaNFT buyout, the protocol calculates how much liquidity needs to be repaid to the original metaNFT owner, transfers the calculated amount, and transfers the metaNFT to the new owner -- assuming that the original owner has agreed to it.