Putty Finance
A Preliminary look at Putty finance based on the seed round close. This is an investment memo done for Maven11 Capital
Overview
P2P NFT options protocol
American Style options that can be exercised at any time
Buy and sell orders for put and call options
Create orders for the floor of a Collection or specific NFT with the base token being stable, WETH or wrapped StETH
Future plans to work with Berachain
Process
Joel creates a long put order for 1 BAYC at strike 50ETH,14 day duration premium 5 ETH
Bob fills the order by depositing 50 ETH into the contract and the premium of 5 ETH
will be sent from Joel to Bob
The sell side is locked in the contract. buyer just needs to have the BAYC in the wallet
When Joel tries to exercise, he will select the BAYC and this will be sent to bobby with the 50ETH sent via the contract to Joel wallet.
Liquidation→ only the NFT needs to be in the wallet
Revenue
No revenue model right now
Maker taker model in the future if there is a token
Go to market
Targetting more of institution use or whales trying to hedge their positions by writing or taking options
In Talks with GSR and Alpha labs regarding market making
Lenders who want to have downside protection on their collections
Team
Out.eth
Former Smart Contracts engineer at Consensys
Avid NFT and options speculator
0xTamagoyaki
Strategy and Culture
Former Technical Consultant @ a large parallel computing company
Holds degrees in Computer Science and Economics from northwestern
Competition
Hook protocol(live)
only has call options but the UI is really retail friendly
9 open options contracts, rather low volume
raised 1m by slow ventures
European style options
Powered by Spicyest as their MM
Fuku(beta)
Buy now pay later p2p call options(buyers pay sellers a small premium to be able to purchase the NFT in the future not out yet
buyers can buy an nft in the future if they do not have the funds right now
Incubated by alpha venture
Jpex(Testnet)
Chainlink price feed
Premium is hardcoded and option write will write the premium and strike price
liquidation occurs at the settlement date and will take the highest bid on OpenSea
Cally
By the same founders as Putty
Users can sell covered calls on their NFT collection
users can earn yield on their NFT collections
users can set their own duration and premium
Thesis
NFT options are certainly an upcoming vertical that will see significant traction when the next generation of web2 users come onboard to web3 and NFTs become more and more mainstream.
However for NFT options to succeed we need NFT liquidity to improve and more NFT derivatives(perps) to come into play and the ease of usage of these platforms to improve.
Pricing of NFTs also becomes an issue with low liquidity and NFT rarity traits. NFT pricing does not conform to normal option pricing strategies as well with Option pricing strategies. Currently, many of them use Spicyest as their pricing oracle, but Spicyest might start charging fees in the future for its usage.
Ease of usage of the platform is also extremely important. Currently putty has a simple design but it is not user friendly which is likely because they are targeting seasoned NFT users but it is important that they cater to new NFT users in the future
For blue-chip collections, there is extremely low volumes(10-30 range for azuki) traded daily in this market which makes it difficult for these NFT options to improve when trading volumes for spot is already so low.
Nft perps(tribe3, Nftperp, GSR, Alpha lab) are also a crucial part of whether NFT options can succeed as whales would like to hedge their positions on their options positions with perps. I personally believe that the bigger market makers have an advantage in this field
Personally believe that the use case of Putty will be primarily for whales who are looking to seek protection for their NFT collections. I do not think that regular NFT holders will be interested in such a product as their purchasing decision revolves around looks utility. For traders we segment to the tradfi experienced users who would prefer a UI like putty but regular users which I believe will be the next wave onboarded would prefer hook.
This also means that the sell side might have a lot of demand from users trying to hedge but there might be little demand on the buy side. I think for Putty to succeed they need to have a proper go to market strategy and make it appeal to more mainstream users if they want to adopt the bigger NFT crowd.
From a VC standpoint I do not have a particularly large view on NFT infra plays. While I do believe that it is definitely an upcoming vertical, it is hard to distinguish a clear winner on these projects. Users buy NFTs due to its digital ownership and its potential utility. I do not think that the regular user will use options and trade NFTs regularly which makes me question the larger addressable market. However I do acknowledge the fact that derivatives markets in tradfi are much bigger than spot and it could be a bigger market than I thought so I can be proven wrong
Links
NFT volumes putty:https://dune.com/tamagoyaki/putty
Website: https://www.putty.finance/
Twitter:https://twitter.com/puttyfi