How does the insrt finance protocol work?
The protocol consists of three pillars:
- Vaults / Wrappers
Our engineering and research efforts are predicated on building modular, composable building blocks for strategy creation. insrt finance contracts “wrap” around NFTfi and DeFi primitives - enabling us to programmatically build and execute strategies that previously could only be executed by writing bespoke code or via manual dApp interaction. Hence, we call them Wrappers.
insrt finance will have Wrappers around a multitude of NFTfi lending primitives, instant liquidity platforms, appraisal tools, and DeFi protocols. Multiple wrappers can be used together in order to produce a cohesive, sustainable strategy in terms of P&L - this what we call a Vault.
A given set of Wrappers structured for a specific P&L profile and transaction flow are called Vaults. On our dApp, users interact and deposit into our Vaults. Vaults are segmented into specific Vault categories. These categories are broadly classified based on wrappers used and the specific type of exposure that a user will acquire.
At an architectural level, Vaults have the following key components:
- A deposit mechanism for depositing assets within the Vault and minting an asset (ERC-20 or ERC-721) that represents a proportional stake in the Vault
- A Vault Pool, which is a smart contract container for storing deposited assets
- An asset origination mechanism for acquiring financializable assets if they are not deposited by depositors, i.e. acquiring NFTs from an NFT aggregator
- Wrappers, which are arranged for the programmatic execution of the strategy
- Oracles, specific to wrappers, which are used for risk management and yield optimization data acquisition
By depositing a supported asset into a Vault, a user will acquire an ERC-20 or ERC-1155 asset (depending on the Vault) that represents their share of the Vault Pool. As the assets are backed by Vault Pool, they have intrinsic value and their price can be modulated by market changes.
Users can freely trade these assets or even execute on arbitrage opportunities (by creating a pool on SudoSwap, for example), or stake these assets in order to acquire our INSRT governance token.
Some Vaults support governance. Wallets that are holding an asset representing a position in the Vault will be able to vote on Vault-specific strategy issues, such as liquidation thresholds, risk tolerance, and other matters related to the management of the assets held within the Vault Pool.
Currently, insrt finance is focusing on providing the following types of return-generating strategies:
- Spot Exposure: exposure to an NFT collection's value appreciation
- Fee Capture: capturing instant liquidity protocol trading fees
- Collateralization: borrowing against assets in order to execute a continuous yield-farming strategy
A specific return-generating strategy is not limited to one underlying primitive at the lego base layer. Strategies can be combined via Wrappers to offer more sophisticated structured products for more complex pay-offs.
While the first Vaults will be created by insrt finance, later on users will be able to create their own using the provided Wrappers. This is what we call Discovery - the Insrt core team provides the base layer, integrations and infrastructure for researchers to create new Vaults on top of the protocol.
Community members are encouraged to provide proposals for and develop new forms of strategies on top of the insrt finance Wrapper base layer. Grants for Methodologists developing new strategies will be approved via governance. Vault creators, or Strategists, will be rewarded via grants from our Development Fund and a fee sharing mechanism.
Additionally, Vaults approved via governance will be pre-seeded for kickstarting strategy execution.
The INSRT token will play two fundamental roles. First, the token will be a tool for the decentralised approval of new strategies and Vaults, as well as a source of decision-making for the allocation of treasury assets for the further R&D of the insrt finance protocol.
Secondly, insrt finance users will be able to acquire the INSRT token. A majority of protocol fees captured will be distributed to users who have locked up their INSRT token.