Reservoir Protocol: A new underlying protocol to solve the liquidity problem of the NFT market

Written by: LeftOfCenter

BlockBeats previously released "Forward Protocol: In NFT In the article "Finding the Optimal Solution in the Battle of Royalties", it is mentioned that the Forward protocol encourages LP market-making behavior without abolishing NFT copyright fees, and solves the current problems of insufficient liquidity and difficult price discovery in the NFT market. Provide NFT vending machine-style user experience for NFT collectors.

 

Abolishing the frictional cost of NFT copyright fees can be said to be an economic incentive for NFT market-making to some extent. However, in addition, the Forward protocol also provides NFT market-makers from the underlying developer tools and a larger system level To provide more benefits and convenience, and further, it is the grand vision that the underlying protocol Reservoir Protocol where the Forward protocol is located in wants to achieve: that is, to realize "democratized NFT liquidity, and support the next generation of NFT through open-source on-chain NFT order aggregation." Product Development and Liquidity Sources".

 

In fact, the Forward protocol is a new protocol product officially produced by the Reservoir team. This article attempts to sort out the business logic of the underlying protocol Reservoir Protocol where the Forward protocol is located, and how to view the Reservoir protocol from an overall perspective. Merchants, buyers, application developers, traders and other participants are included in this increasingly large ecosystem.

 

 

The relationship between Reservoir and Forward agreement at the business level

According to Forward The official document of the protocol, the Forward protocol is created on top of the Reservoir protocol, and market makers can use a set of dedicated API and SDK tools provided by Reservoir to easily interact with the Forward Protocol and create NFT buy and sell order books. For those users who have data requirements for more complex market-making models, you can use Reservoir Data API , and Programmatic Transactions with Reservoir. On the other hand, NFT orders created in the Forward protocol, whether it is NFT bidding (bidding) or listing (listing), will be updated and distributed to other protocols, markets, and applications that have been integrated in the Reservoir system.

 

In translation, in addition to abolishing the friction cost of NFT copyright fees, the Reservoir protocol also provides market makers with benefits in two other aspects:

1) A set of easy-to-use market maker tools that help create NFT buy and sell order books.

2) Reservoir uses its own open order book system to help distribute liquidity.

 

That is to say, the Reservoir protocol provides Forward market maker users with tools to create and generate new liquidity, and distribute it to its own order book system network, so as to achieve "democratization of NFT liquidity, through open-source on-chain NFT Order aggregation supports next-generation NFT product development and liquidity sources”, which is also the main goal that the Reservoir protocol wants to achieve.

 

What is Reservoir?

Reservoir Protocol mainly wants to do two things: one is to support the access and execution of NFT available liquidity, and the other is to support NFT liquidity sources .

 

Supporting access to NFT liquidity is aimed at buyers, and it refers to providing a simpler and easier-to-use liquidity access experience for market makers and ordinary buyers. Specifically, when users want to query NFT price data, they do not need to go to more than 20 independent NFT markets, platforms or protocols to query NFT price data one by one, they only need to directly obtain the overall NFT price data through the API published by the Reservoir protocol. Market price data and execute orders from any market/platform whether 1st or 3rd party, vertical or generic, directly through the API.

 

The second point supports the source of liquidity, which refers to distribution of NFT liquidity. It is aimed at NFT sellers in a broad sense, such as marketplaces, tools, and platforms such as AMMs. Specifically, any source of liquidity that joins or is originally created in the Reservoir Protocol ecosystem can share liquidity with other markets in the ecosystem. This can reach as many potential buyers and sellers as possible, maximize the exposure and circulation of NFT liquidity, and maximize NFT price discovery and liquidity.

 

So far, Reservoir Protocol has aggregated almost The order book liquidity of the current mainstream NFT market, including OpenSea, LooksRare, X2Y2, Zora, Foundation and SudoSwap, and provides an easy-to-use API and SKD to open these liquidity to everyone.

 

 

Technical solutions and key advantages

For those who have no experience in NFT transactions in the past Users may think that "one-time access to all available NFT liquidity and fast execution of transactions through a unified interface" is just a very basic user purchase experience. Behind the basic experience of displaying, flowing and trading NFT in an overall perspective interface, a lot of work and integration of various resources are required.

 

Why is it so difficult to access the available liquidity of NFTs? This starts with the current status of the NFT city.

 

The realistic dilemma of decentralized liquidity of NFT

 

Although NFT is in 2021 However, its lack of liquidity is still a key factor hindering its development, and scattered liquidity is a key factor leading to the current lack of liquidity in the NFT market.

 

An objective reason for the existence of insufficient NFT liquidity is that the liquidity among the major NFT markets does not share with each other, resulting in liquidity being dispersed in their respective markets and platforms, and obtaining as much secondary market liquidity as possible ( order) has become the target of competition among major platforms.

 

There is an objective reason for the non-sharing of order books in various markets. It is caused by the single model adopted by most of the NFT markets at present, that is, the front-end, order book and transaction contracts are strongly coupled. The direct consequence is that the order books of each secondary market are stored in their own In the centralized database, they are isolated from each other and do not communicate with each other, resulting in the fragmentation of the overall liquidity of the NFT market and making it difficult to obtain overall market data.

 

Reservoir Technical Solution: Decoupling Order Book

< p ql-global-para="true" line="1DEm">Reservoir adopts a new open order book system that does not require permission by unbundling the three-in-one strong coupling mode of "front end, order book and trading contract" , aggregate all liquidity into a shared pool, and unlock the liquidity of NFT.

 

Specifically, Reservoir aggregates the orders of the current mainstream NFT market and stores them on Arweave in a standardized format, builds a license-free, open, on-chain aggregation order book (buy and sell orders), and then provides an open protocol API Make these liquidity available to everyone, so that NFT liquidity can be publicly accessed and executed. Making the liquidity of the existing NFT market more accessible is Reservoir's entry point.

 

Generally speaking, there are two choices when designing an order book system: one is to optimize for cost (usually store orders off-chain) or optimize for openness (store orders on-chain). Based on cost considerations, most platforms will adopt the off-chain order book solution, such as OpenSea, Rarible and other platforms, and NFT, which currently accounts for 80% of the transaction volume on Ethereum, adopts the off-chain order book solution.

 

Reservoir introduces a third option of storing aggregated orders for individual NFT marketplaces on-chain, but on a different blockchain, Arweave, which is cheap enough without security risks.

 

According to founder Peter Watts, "Storing on Arweave does not reduce security. Because security is only related to the signature, if the user signs it, then it is secure, so for The most important thing in terms of security is the action of signing, and it has nothing to do with where it is stored.”

 

Different from Opensea storing the order book in the database, Reservoir stores the order book on Arweave and provides a keyless An API with no rate limit opens it up to everyone, minimizing the barriers to liquidity access.

 

Founder Peter Watts  said, "In addition to Opensea's centralized off-chain order book, Reservoir provides users with an alternative option that is open and permissionless, does not rely on a centralized database, and is also very cheap, close to running a database The cost is basically equivalent to the cost of listing NFT for free."

 

NFT vertical market will become community standard

Reservoir open source marketplace Tools Reservoir Market, NFT communities/project parties/issuers can quickly launch a customized NFT vertical market through Reservoir Market.

 

What are the benefits of starting your own secondary trading market with Reservoir?

 

Petter said that Reservoir hopes to make it easier for each community to start an NFT secondary trading market, and at the same time make the transactions of social members safer.

 

1) Lower the construction threshold of the secondary NFT market, allowing project parties with professional background knowledge to build the best user experience.

 

Reservoir provides an easy-to-use secondary market construction tool. Basically, the project party does not need to do too much work on the infrastructure, and can quickly start an NFT secondary market without background knowledge An independent NFT secondary market, which lowers the threshold for market construction low enough to focus energy and focus on building business processes and user experience.

 

Creating a more refined user experience has been proven to lead to higher sales. ENS domain name trading market ens.vision built using the Reservoir protocol , due to the creation of a better user experience in the general market, the domain name transaction volume in this market has surpassed Opensea.

 

 

Reservoir protocol native liquidity Transaction volume ratio, where ens.visionTop 1

 

2) NFT's own trading market can provide users with legal links to ensure transaction security.

 

In the current situation where NFT fraud is rampant, various ingenious fraud methods have appeared on the market. The same NFT project is often accompanied by various counterfeit versions of different versions. NFT theft and fraud through URL links or even the same name. For example, searching through keywords on Opensea often leads to multiple fraudulent projects with the same name, making it difficult to distinguish between true and false. Especially those high-net-worth blue-chip projects, once hacked, will cause heavy losses to users.

 

NFT’s own trading market can provide a layer of security for community users. Officially confirmed legal links are provided here to ensure the security of users’ transactions.

 

3) Self-owned secondary market can be customized in various settings, including transaction fee (you can set it to zero), or set the transaction fee as a community-led governance DAO pool.

4) Reservoir addedSupports the Normalized Royalties function, supports developers to automatically fix aggregated orders from non-royalty-compliant markets and display them at the top. Currently the normalized royalty feature will affect orders from OpenSea, LooksRare and X2Y2. As more non-royalty compliant marketplaces are added, the feature will automatically support standardized royalty features (such as Sudoswap and Blur).

The secondary music trading market built by sound.xyz uses this function to support listing orders with 0% royalties at the top.< br>

Peter Watts  says enforcing royalties is critical for a creator-owned marketplace , and the target users in these markets actually want to support creators as well. Such markets get all the liquidity without sacrificing royalties. However, for those content vertical markets, this willingness to pay copyright fees is much lower, and may even tend to zero, because such markets are more biased towards buyers than creators, Therefore need to compete with each other to gain more market share.

5) Secondary market construction support combination, in addition to a single market, NFT communities/project parties/issuers can also build NFT vertical markets that integrate multiple different project parties.

 

Reservoir mainly supports two types of vertical markets, one is the NFT vertical market based on specific communities/projects, such as Crypto Coven's own secondary trading market, the other is the content vertical market, such as music, domain names, games, and land parcel NFT assets in Metaverse.

 

Currently Reservoir supportCommunity marketplaces including Gmoney Market, Loot Exchange, and Crypto Packaged Goods (CPG) Market, etc., and content vertical marketplaces like sound.xyz, Future Tape, etc.

A list of some community NFT vertical markets currently supported by Reservoir

 

Taking music NFT assets as an example, a musician can create his own NFT vertical market , only contains your own music NFT works, similar to the official NFT purchase store, where all released personal music works are displayed, and the works of this musician may also appear in the music NFT vertical market, which contains multiple musicians s work.

 

The same NFT project can appear in many different markets, whether it is the official market, the NFT general market, or the vertical market. For buyers, they can be guided from the official website to a safe general market transaction, or they can choose to trade on the basis of The vertical content market for content curation is traded, of course, it can also be traded directly from the official market. Liquidity is shared in these different places, but for different users, they enter each market according to different contexts, and finally achieve Buy.

 

Petter stated,“Our expectation is that it will become standard for communities to have their own secondary markets. That is. Anyone who creates an NFT can easily build a secondary market using Reservoir, just like every community There is an official tweet that is the same as discord."

 

6) Distribute liquidity, which is also the most important point. That is to say, once Reservoir is used to build its own NFT market, the orders in this market will be stored in Reservoir's order book and automatically distributed to all other markets that have been integrated to maximize the exposure and circulation of liquidity.

 

Unlike other isolated marketplaces, Reservoir is focused on aggregation. All apps/marketplaces and platforms that share an order book are connected to each other, which means that once an item's NFT is listed on Opensea, it is immediately and automatically listed on its own market. Similarly, NFTs listed on its own market will also be updated to other aggregated markets/or applications/AMMs simultaneously to reach as many potential buyers as possible.

 

From off-chain to on-chain, complement the NFT data analysis map The missing piece

With the vigorous development of NFT, more and more data will be generated around NFT. For degen in the encryption industry, by comparing and analyzing NFT market data, it is possible to effectively find more The ALPHA, enhance the revenue growth space.

 

Usually, traders will use the on-chain data analysis tool Dune Analytics to obtain data. Users can retrieve, filter, extract and aggregate data through SQL database syntax, and output a visual Dashboard panel. According to the corresponding data analysis and Conclusion to operate.

 

However, due to storage cost considerations, most NFT markets led by Opensea have adopted the method of storing orders off-chain, resulting in a large amount of NFT data being stored off-chain, including rarity characteristics, image/audio/video source files wait. This means that using Dune Analytics for NFT data analysis and screening cannot obtain a comprehensive NFT data analysis map.

 

Reservoir reconstructed a permissionless open NFT order book system and stored it on the chain. By publishing related data sets on Dune, Reservoir made up for the missing piece of data query and analysis in the NFT world-off-chain data. Through a combination like Reservoir x Dune, analysts can easily access real-time and historical NFT data, including off-chain sales, orders, and metadata.

 

In addition, Reservoir supports finer-grained NFT data, and various types of rich metadata (metadata) can be retrieved through the API, such as base price data based on specific rare attributes, fine-grained price data with flexible query options, and pricing A signed price oracle with data on the chain.

 

These data can also be used to build tools and experiences specific to a certain market segment, such as wallets that offer built-in selling functionality, or rarity browsers that focus on the buying experience, emerging liquidity solutions that bid based on entire NFT series, etc. .

 

Currently used analysis tools include: Upshot, NFTGo, WGMI.io and FlooredApe, etc.

 

< h3>Promoting NFT liquidity access, creation and distribution closed loop

From closed to open, from isolation to sharing an order book without permission system, Reservoir will bring unlimited possibilities to NFT market liquidity.

 

Specifically, Reservoir has created a closed loop of NFT liquidity ecology from accessing, viewing, executing liquidity, to creating and incentivizing the generation of liquidity, and distributing liquidity.

  

1) Access, View, Execute Liquidity and Available Data:

 

Reservoir provides an open liquidity API with no key or rate limit. In terms of availability, it enables professional Both market dealers and ordinary collectors can have easier access to liquidity.

 

For ordinary buyers, one of the most direct impacts is that they can access all available liquidity at one time with a unified interface by calling the API, and execute transactions quickly.

 

All NFT markets adopt Reservoir Execution transaction proportion data

 

For developers, they can also obtain overall data on the chain. And it is only valuable to obtain holistic market data products, such as wallets that provide built-in NFT sales functions, rarity browsers that focus on the buying experience, custom NFT marketplaces, and NFT analysis websites.

 

2) Provide support for the creation of a new generation of liquidity tools to promote and accelerate the generation of NFT liquidity.

 

The advanced order book model supported by Reservoir can be used by professional market makers, that is, this bid supports the entire range of NFT series and rarity traits, providing the possibility to generate more liquidity sex.

 

NFT auction market for professional NFT market makersLevee , due to the adoption of the Reservoir protocol, it provides market makers with bids based on the entire range of NFT series and rarity traits, aiming to provide liquidity providers with the best auction experience.

 

Forward Protocol is another The service for NFT liquidity providers in the Reservoir ecosystem, which is officially produced by the Reservoir team, hopes to incentivize market maker behavior by reducing friction costs for market makers, thereby allowing more transactions and liquidity to occur.

 

3) Open up the NFT markets that are isolated from each other, create an open order book system, and distribute liquidity

 

Whether it is based on the original liquidity of the Reservoir ecology or the major The mainstream NFT market, or the emerging AMM market-making platform Sudoswap, as long as they are connected to the Reservoir ecosystem, they can share liquidity with each other, reach as many potential trading parties as possible, and gain traction.

 

Over time, open liquidity resources will surely form network utility. In the future, integrating liquidity will become an inevitable motivation for accessing the Reservoir ecosystem, whether it is for project parties, new-generation liquidity applications, or developer tools.

 

Team, revenue model and financing

Forward Protocol and Reservoir Protocol are both developed by the same behind-the-scenes team. The team has a total of 12 people. Except for some members in the United States, most members adopt the global remote collaboration model. Peter Watts  is in Sydney himself, and has development members in New York, Shanghai, China, and Romania.

 

The team has received 10 million US dollars in financing, and the specific investment institution has not yet been announced.

 

Currently, neither of the two products has a revenue model. In the future, the 2B API payment model may be adopted, and decentralized tokens may also be issued.

 

Forward Protocol tries to create more NFT liquidity from the level of incentives, but the team's ambition is far more than that, but hopes to promote a complete ecological closed loop of NFT liquidity from the level of the ecosystem, that is, from off-chain to On the chain, from closed to open, from being isolated from each other to sharing an NFT order book system that does not require permission, its underlying protocol Reservoir Protocol attempts to access and execute liquidity, create and motivate liquidity generation, and distribute liquidity. Promote a complete ecological closed loop of NFT liquidity. As more NFT markets are integrated and more transactions are generated in the future, this ecosystem will inevitably accumulate greater network effects.

 

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