How NFT Perpetual Futures Work: An Interview with the Founder of nftperp

Non-Fungible Tokens (NFTs) are one of the most important segments of the cryptocurrency industry. Every year, the ecosystem around these instruments grows, with more and more products emerging that allow them to be used in various financial transactions.

One such product is the decentralized exchange nfterp, whose users can trade perpetual futures on the minimum price (floor price) of tokens of different NFT collections.

The Incrypted editorial team spoke with nftperp founder Joseph Liu. He talked about the platform’s features and explained how derivatives based on NFTs work.

Tell us about yourself. How did you get involved in the cryptocurrency industry?

Before crypto, I worked in private equity in the traditional finance sector. I got into crypto in 2017 because a close friend of mine introduced me to bitcoin and ethereum. That friend now runs Bankless Ventures as a general partner. From 2018 to 2020, I worked for a crypto VC firm, primarily focusing on early-stage investments and portfolio company support.

How was the concept of nftperp born? How did you pitch the project while raising funding?

Back in 2021, our team members were heavily trading and collecting blue-chip NFTs. We quickly realized the marketplaces and liquidity for collections were very inefficient for professional traders. There were no viable ways to short NFTs and no ways to get leveraged exposure. Those pain points set us on a journey to create the first NFT perp DEX in the space.

When we first started fundraising, we talked with big NFT traders and collectors and pitched our vision of nftperp. Very quickly, we obtained support from investors who believed in our vision and aligned with our problem-solving mindset. nfterp is a product built for traders, by traders.

What are perpetual futures on NFTs? How does it work?

Imagine betting on the future price of popular NFTs like digital art or collectibles without needing to own them. You use ETH to place your bets, and your gains or losses are also in ETH.

How does your trading platform work?

The platform uses a hybrid model combining Automated Market Makers (AMM) and On-chain Decentralized Limit Order Books (DLOB). This setup ensures consistent liquidity and minimal price impact, allowing for efficient price discovery and order execution directly on-chain.

nfterp works within the Ethereum ecosystem. Do you plan to extend the list of supported networks?

Right now, we’re focused on Ethereum and haven’t planned to expand to other networks yet. But, we might look into it if our users want it.

Speaking of Ethereum itself – why Arbitrum and Blast? Should we expect the application to work on other L2s?

Arbitrum and Blast are chosen for their scalability benefits, helping to handle the higher transaction throughput and reduced gas costs, crucial for trading and liquidity provision on nftperp. Potentially, yes.

Tell us about the insurance fund. It offers a relatively high APY for depositing funds. What are the risks? Have there been instances where reserves have been used to cover bad debt or has this never happened?

The insurance fund acts as a financial safeguard, collecting a portion of transaction fees and liquidation residuals. Contributors to the fund receive yields and are exposed to risks mainly if the fund must cover bad debts from liquidations.

During the V1 phase, despite some challenges, we managed to handle the situation well, using some of the insurance fund only when absolutely necessary, such as refunding 49 ETH due to a specific issue with liquidations.

How can bad debt occur?

Bad debt can occur if the collateral in a trading position becomes insufficient to cover the trade, especially during market volatility and rapid price movements, potentially leading to liquidations that the insurance fund might need to cover.

Tell us about your NFT collections. What functions do these NFTs perform on nftperp?

The Mafia Nuts collection offers multiple benefits to its holders on nftperp. First, stakers receive boosted rewards on platform incentives, enhancing their potential earnings. Over time, the collection will be used for social elements of trading and may include perks like early access to features on the platform.