Introducing Liquid NFTs: Unleashing NFT Liquidity to Make NFTs Great Again
The NFT market has made massive strides, but for holders and creators, one challenge remains constant: liquidity. For most collections, 95% of trading activity happens at the floor price, while mid-tier and rare NFTs sit idle - often with no bids, slow sales, and difficult price discovery.
Liquid NFTs, developed by the TradePort team, offer a new solution: a rarity-weighted tokenization model that gives any NFT collection instant, fungible liquidity without sacrificing rarity, uniqueness, or value.
Let’s break down what Liquid NFTs are, why teams may want to leverage this new primitive, and how it works.
The Problem: NFT Liquidity Today
For most collections, NFT liquidity today looks something like this:
- Floor-price dominance: 95% of volume clears at the floor, leaving mid- and high-tier high items stagnant.
- Low bid depth above the floor: Mid- and high-tier NFTs often have little to no offers, leading to illiquid markets for this segment of collections.
- Stagnant assets: With NFTs in their existing state, there is no way to earn a profit while holding your assets without selling the assets themselves. This leads to competing incentives for holders (wanting exposure to the project but also wanting to make sure their capital is productive). Without a way to put these assets to work, volume and liquidity are also limited.
This creates an inefficient market where rare NFTs may technically be more valuable but struggle to sell at a price that captures that value, limiting both liquidity and true price discovery.
The Solution: Liquid NFTs
Liquid NFTs offer a novel mechanism that transforms NFT collections into liquid, tradable assets while preserving (and amplifying) trait rarity. The system allows NFT holders in a collection to tokenize their holdings into a single fungible asset that reflects each NFT's underlying rarity.
In this system:
- NFTs are deposited into a bridge.
- Holders receive a fungible token allocation proportional to each NFT’s rarity score.
- Rare NFTs receive more tokens than common ones, naturally weighting the fungible asset pool by trait scarcity.
- Fungible tokens can be contributed to the LP pool to earn fees from trading
- NFTs in Liquid NFT collection earn a portion of the interface swap fees from the fungible tokens of that collection. Simply being an NFT holder can be rewarding with Liquid NFTs.
Further, this allows traders to gain collection exposure at any size - from full NFTs all the way down to single fungible token exposure - while giving holders a powerful new liquidity option that doesn’t involve selling the NFT and exiting the community outright.
How It Works
Let’s walk through the key components:
- Rarity-weighted allocation: Each NFT receives a proportion of the token supply based on its rarity score. For example, if a collection has 1 billion tokens, the allocation formula is: allocation = (rarity_i / total_rarity) × total_tokens
- Open redemption model: Holders can always bridge NFTs into tokens or redeem tokens back into NFTs. Redeemed NFTs are chosen from the bridged supply, with token pricing reflecting rarity.
- Liquidity bootstrapping: After launch, the fungible token trades on a decentralized exchange (DEX) like Uniswap V3, providing instant, permissionless liquidity.
- No burns, no supply drift: NFTs aren’t destroyed; they’re simply held within the bridge until redeemed. Supply remains constant, fully transparent, and decentralized.
Why Teams Would Want to Launch Liquid NFTs
Liquid NFTs offer several compelling benefits for both NFT projects and their holders:
💰 A Path For Holders And Collection Creators To Earn
LP Pools: Holders can liquify some or all of their NFTs to fungible tokens and place those tokens in an LP pool to earn fees from trading. Similarly, collection creators with a treasury of NFTs can put that treasury to work in the same way in the LP pool. These fees could substantially outweigh what collection creators could earn solely through royalties, as fungible token volumes typically far outpace NFT volumes.
NFT Rewards: NFT holders who don’t liquify their NFTs can also earn rewards. The Liquid NFT primitive is designed to pay out a portion (initially 25%) of the interface swap fees from fungible tokens into every NFT in the collection, distributed by rarity.
🔓 Unlock Liquidity Without Sacrificing Rarity
NFTs can now receive value in direct accordance with their rarity score via fungible tokens, capturing value from premium traits that typically don’t trade often. This creates a healthier, more dynamic market for the entire collection.
🌊 Liquidity That Creates Opportunity
With the ability to liquify NFTs for a set amount of fungible tokens, opportunities for arbitrage between the NFTs and the fungible tokens will arise. The two asset types will trade independently of one another’s price on the market, but the exchange rate between the NFTs and the fungible token will remain the same. That means if the fungible token price dips sharply by 20% and the NFT floor stays the same, a savvy trader could buy fungible tokens and convert them into an NFT, effectively getting a discount in USD or Sui terms for the NFT.
📈 Expanded Market Cap Potential
Unlike traditional floor-based valuation models, Liquid NFTs capture the full embedded value of the collection - potentially expanding market cap 1.5-3x or more as rarity premiums are priced in.
🔄 Deep, Low-Slippage Trading
Traders and NFT enthusiasts alike gain a simple, fungible market to easily get exposure to the price performance of an entire NFT collection - something that’s nearly impossible in standard NFT marketplaces today.
A Real-World Example
Let’s walk through the implementation of Liquid NFTs through a collection of 5,555 Fun Duck NFTs on Sui.
- Total token supply: 1 billion $DUCKS tokens.
- Token allocation based on rarity score.
- Seed liquidity provided via Uniswap V3 with narrow tick ranges for price discovery.
- The rarest Ducks receive larger $DUCKS allocations, reflecting their premium rarity.
Fun Ducks holders would have the option to unlock liquidity and start earning on that liquidity via LP pools, while traders can gain exposure to the entire collection through the $DUCKS fungible market. NFT holders earn a portion of the fees generated by $DUCKS swaps on TradePort.
Let’s bring this example to life with some hypothetical numbers.
- Fun Duck NFTs Market Cap - $1m
- Implied Floor NFT price of Ducks NFTs - $180
- $DUCKS token price - $0.0015
- Liquidity in the LP pool (DUCKS / SUI) - $100k
- Daily volume of $DUCKS trading - $500k
- Cumulative daily LP pool fees - $20k
- Daily swap fees distributed to NFTs - $1.25k - Rarest NFT holder gets $6 worth of DUCKS and SUI per day in fees. Holding Ducks NFTs in this scenario could be compared to staking Sui. Sui staking yields ~2% APY. At these volume levels (if held consistent for a year), Ducks NFTs would “yield” 1216%.
Economic Incentives For All Participants
| Entity | Incentive |
|---|---|
| NFT Holders | Generate fees derived from swaps on TradePort by simply holding NFTs and/or liquify mid-tier/rare NFTs to capture their full value via the fungible token |
| Token Traders | Gain collection exposure simply by holding $DUCKS. Take advantage of arbitrage opportunities. |
| Liquidity Providers | Earn swap fees while providing Liquidity and maintaining exposure to the collection |
| Collectors | Redeem tokens to acquire NFTs at rarity-weighted pricing |
The Future of NFT Liquidity
Liquid NFTs represent a next-generation liquidity primitive that unlocks trapped value across entire collections, creates a way for holders to earn from their assets, rewards trait-based rarity, makes exposure to the collection more accessible, and creates healthier, more transparent markets for all participants.
By solving liquidity fragmentation, without destroying rarity, Liquid NFTs open entirely new economic opportunities for creators, collectors, and traders.
Build With Liquid NFTs
We’re excited to bring Liquid NFTs to teams on Sui - whether you're preparing for an upcoming launch or already live with an existing collection.
TradePort’s mission is to continue expanding this primitive across the ecosystem, giving NFT teams the tools they need to build sustainable, liquid markets for their communities.
If you’re an NFT project interested in exploring Liquid NFTs for your collection, reach out to the TradePort team.
FAQs
Who should I contact if I’m interested in creating a Liquid NFT collection?
You can reach out to us via a Discord ticket or Twitter DM - we’re happy to chat!
Can NFT collections that have already launched on Sui implement Liquid NFTs?
Yes! TradePort can integrate Liquid NFTs into both new and existing collections.
Can I trade the liquidity token on a DEX?
Absolutely - the token is fully tradable on DEXs (starting with TradePort’s DEX).
Is this only available on Sui?
Currently, Liquid NFTs are launching first on Sui. Stay tuned as we continue building and expanding to additional chains in the future.
If my project already has a fungible token/meme coin, will the Liquid NFT token interfere with it?
Liquid NFTs are designed to complement your existing token, not compete with it. The liquidity token is tied to the NFT collection itself. Plus, teams will earn fees that can be used to give back to the community or support their existing token ecosystem.
