SODIUM - Fair Price Engine™ (FPE)
Recently the SODIUM team has received many questions about the platform’s logic and design. It’s time to briefly explain some of those aspects.
Let’s start with the Fair Price Engine™ (FPE), as that has been by far the most requested part of the SODIUM protocol to be explained.
The FPE is our proprietary, automatic NFT asset pricing system, which utilizes machine learning to monitor price behaviors of EVERY NFT within a collection listed on SODIUM.
Why do we need it?
Before accepting borrowers’ NFT assets as collateral, we need to know what the value of that asset is. At current, NFT prices are affected by the various emotions of market players, and are thus very subjective; our goal is to find the highest price that would be accepted by the open market if the collateral had to be sold.
After NFT collateral is deposited to the protocol, the FPE will continuously update its estimation according to the market situation. It will allow the protocol to readjust the LTV (Loan-to-value) ratio aka Health (in SODIUM terms) and increase/decrease the borrowing limit in real-time.
Collateral deposited to SODIUM may go up value if market prices increase, thus leading to a higher FPE evaluation. In such a case, the protocol will increase a user’s Health and borrowing limit, which means the user can borrow more liquidity. In the case of collateral losing value, both the Health and borrowing limit will decrease.
Why so complex?
We’ve seen many ‘automated NFT evaluation systems’ that ONLY use the floor price as a reference, which is critically unsafe for protocol users. As a borrower who wants to keep their NFT safe, yet still access liquidity via one of these systems, you’ll need to keep your LTV (Loan-to-value) ratio as low as possible… Only one instance of floor price manipulation via wash trading could cause the liquidation of your precious NFT collateral.
Imagine using such a “financial tool” that could automatically liquidate your asset even if you didn’t do anything wrong and the value of your asset never changed.
Well, thanks… but definitely no thanks.
At SODIUM we have a totally different approach — our algorithm evaluates a number of unique data points in order to accurately calculate a final estimate.
Our FPE analyzes past trades of NFTs with similar rarities using gradient boosting and deep neural networks. This prevents FPE price estimates from being influenced by market manipulators.
Figure 1: Bored Ape Yacht Club price data cloud
Sounds good, when moon Ser?
At SODIUM, we have a team of world-class Data Scientists improving the algorithm every day. Our FPE has already shown impressive results during initial testing — however, we need to make sure that everything works as expected even under the craziest of market conditions.
The Fair Price Engine™ is now in the alpha test stage. All testing is been conducted off-chain, and will be implemented on-chain as soon as we are ready for a public Beta.
Stay tuned for more to come!
