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1. Overview

The Gnomies’ NFT Pawnshop is a DAO-driven decentralized lending protocol built on the Solana Blockchain. It is designed to allow users to get instant loans from the protocol’s pools against their Solana-based digital-assets (e.g. NFTs out of SMB or Degen Ape Academy).

The pThe protocol is ruled by DAO, whose members are the users holding one or more NFTs out of the Pawnshop Gnomies collectible. There are only 5,555 unique Gnomies, which means that the max size of the Pawnshop Gnomies DAO-Community is 5,555 members.

Any NFT out of Pawnshop Gnomies collectible might be considered as a governance token in other lending protocols which are common for the DeFi market nowadays. All the Gnomies holders receive the yield and incentives from the protocol and have an ability to vote for different decisions (including APY rates, collectibles accepted for being a collateral, risk rates etc.).

2. Wh2. What problem does NFT Pawnshop solve?

The market is coming to a new era where NFTs (besides their collectible value) bring new applications and functionality to the holders: access to closed communities, generation of profit (like the Gnomies NFTs), utility in games/metaverses etc.

All thAll that means that in many cases the strategy of holding NFTs (instead of flipping) becomes rational and more profitable in the long term. But still, this strategy might not be considered capital efficient. A current floor price of one holder’s NFT represents not only a value but also – an amount of liquidity that is locked inside his asset and can’t be utilized for other trades and deals until he sells it.

CCurrent market growth with communities maturity around top-collectables and lending protocols in DeFi ecosystem indicate markets available synergy. Since establishing the NFT ecosystem, the market still lacks an elegant solution on automatic P2Pool loans. It has a clear demand for such a tool per the Gnomies 3-months R&D, anonymous questionnaires as well as analysis of TVL inside the top-collectables.

The Gnomies mission is The Gnomies mission is to bring capital efficiency to the NFT market. They aim to solve this issue by providing Solana-based NFT holders with a transparent and decentralized tool, which allows them to extract the liquidity locked inside digital assets and get these assets back anytime by repaying debt with an interest.

Abstract. The following document is a lite paper prepared by the Pawnshop Gnomies aimed to describe the basic principles and algorithms of the NFT lending mechanism behind the collection, as well as to point the utility and

profits that the Gnomies bring to the community.

DAO-driven NFT Pawnshopbuilt on Solana

Pawnshop Gnomies

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3. How does NFT pawnshop work?

There are 4 main blocks needed for correct and stable processing of the NFT lending protocol:

1) Selection of eligible assets. The Gnomies must know what types of collectibles are sufficiently trusted by the community to be considered as collateral.2) Pricing. The Gnomies must know what is the market price of collateral and what amount of liquidity is fair to be unlocked. They also need to track it permanently when a loan is issued.3) Liquidation s3) Liquidation scenarios. The Gnomies must have a way out of the deal in cases if collateral drops in value and market price.4) Liquidity providing. The Gnomies must have access to the capital – the liquidity providers which are interested in getting APY from borrowers.

The selection of eligible assets is pThe selection of eligible assets is processed by the Pawnshop Gnomies DAO. The Gnomies believe in the power of communities and consider the real value of one NFT collection by the size and value of its community. So if the Gnomies holders consider the SMB community as strong and growing one, they may offer to take the SMB NFTs as collateral and the other Gnomies holders might vote for or against. As far as the situation around SMB or other collections might change, such types of voting might be launched by any DAO member at any time. The Gnomies Discord server is a place for discussions around these and all the other issues.

PPricing is an automatic process predetermined by the NFT Pawnshop smart contracts. The Gnomies don’t believe in manual evaluation because it’s slow, subjective and has the risks associated with information asymmetry. That’s why the Gnomies mine lots of data from the Solana blockchain, so they know everything about collections they work with: floor prices, rarity ratings of each NFT, former sales history and price trajectories. Once minted the Gnomies carry all the data to the Gnomies Oracle and ask for his prophecy. The Gnomies Oracle is a special service which gives fast and accurate evaluation based on floor price, market trends and attributes of the particular of the particular collection.

Liquidation scenarios must be clear both for borrowers and liquidity providers. The Gnomies utilize over-collateralization and start from issuing loans which are up to 30% of the evaluation as for now, and plan to increase it over time for some types of collections (which are more trusted) in accordance with DAO decisions. At the beginning that percentage is safe both for borrowers (there is a significant margin of safety if collateral’s market price falls) and for liquidity providers (there is no need to activate liquidation scenarios with relatively small price fluctuations). However, if the liquidation scenario is being activated and the borrower doesn't add liquidity to chanchange the situation, the Gnomies holders get early access to buy the liquidated assets with a significant discount from a regular market price.

Liquidity providing is an important part as the Gnomies must always have free funds to issue loans. Initially, the Gnomies will create the Community Vault out of part of the funds collected during the minting. These funds will be utilized for the first loans issued as well as for security needs in the future. The Gnomies will also announce a liquidity mining program where the liquidity providers are rewarded both with APY collected from borrowers and by incentives from the NFT Pawnshop itself including airdrops and special mechanics for increasing income.

DAO-driven NFT Pawnshop built on Solana

Pawnshop Gnomies