What is a SmartPiggy NFT?

Prerequisite background reading: What is a Financial option?

"Decentralized options offer the potential to protect against changes in the price of a broad spectrum of assets, well beyond the scope of traditional options offered to retail investors today. Using these options, a pig farmer could protect against movement in the prices of gasoline, livestock feed, or agricultural output, a small import-export business owner could hedge against fluctuations in exchange rates for local currency, and a cryptocurrency trader could insure the value of a portfolio. For any asset, product, or service with a suitable price feed, a decentralized option offers protection against unexpected fluctuations in that price, enabling individuals to manage risk in their personal finances and business ventures."

Made possible by :

  • Smart contracts

  • ERC-20 stable tokens

  • Decentralized oracles

Inspired by:

  • ERC-721 NFTs

An ERC-721 is a framework to describe a standard for non-fungible tokens on the Ethereum network. The specification of this standard can be found here: https://eips.ethereum.org/EIPS/eip-721 NFTs are like ERC20 tokens but they differ in their uniqueness. ERC20 tokens are identical to each other, where ERC721 tokens are different from every other ERC721 token.

SmartPiggies are NFTs that anyone can create on the Ethereum network. Each "piggy" is a non-fungible token, with value locked inside. The value locked in each piggy are a special kind of ERC20 token, called "stable tokens." Stable tokens are ERC20 tokens that are generally convertible in a one-for-one fashion for a currency, e.g. Dollars, Euros, or Yuan.

USDC, a digital dollar stable token, is one example of an ERC20 token, issued on Ethereum, that can be freely, and consistently, traded for US Dollars. 1 USDC is always and forever equal to 1 US Dollar.

These stable tokens are deposited into a non-fungible piggy when someone creates a piggy. These stable tokens are then locked inside the piggy, and under certain conditions, the piggy can be "broken" open so that the stable tokens can be taken out. Taking out, or "withdrawing," the stable tokens or funds from a piggy is an automagic process that a user can execute if favorable conditions develop for the owner of the piggy.

Non-fungible piggies can be "broken" open under certain conditions. This process is similar to how traditional financial options execute. For example, Alice can create a non-fungible piggy that follows the dollar price of Ethereum (or anything really), and deposits 100 USDC into the piggy. This piggy is non-fungible, and therefore not like any other piggy. Even if Bob created a piggy to follow the dollar price of Ethereum, with 100 USDC locked inside, Alice and Bob's piggies would be different from each other. And even if they were parameterized to execute exactly the same, they would have different token IDs.

Alice, with her ETHUSD piggy, can put it up for auction, where anyone with access to the Ethereum network can purchase it. Let's say Alice is selling protection, or insurance, against the Ethereum price in US Dollars moving lower, i.e. ETHUSD is $100 and the piggy will payout if the price goes below $80. Carol is looking for exactly this protection, to insure her ETH holdings. After Alice places her piggy on auction, Carol can buy it. And if the price of ETHUSD goes below $80, Carol can break open her piggy, while the SmartPiggies smart contract automagically distributes the winnings to Carol and the remaining funds to Alice. Alice is the creator or writer of the piggy, and Carol is the holder.

SmartPiggies are peer-to-peer, non-fungible tokens that hold value in the form of stable tokens, and can be opened under parameterized conditions. They can be created, auctioned, cleared, and settled without intermediaries. This is all done on the Ethereum network.

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