“There’s been lots of demand for trustless utility sales – LoudPunx concerts, Azuki premium merch claims, Yuga gaming access. But until now, users have been limited to either relying on faith or capital-inefficient over-collateralization. Delegate is the first solution that works for all NFTs even if they were deployed years ago,” foobar said in an interview.
Following on from the September 2022 launch of delegate.xyz, which allows holders to delegate utility—which can be anything from airdrop access to entry to an exclusive event—the new marketplace lets anyone buy and sell these valuable rights without the risks involved in trading them over the counter.
Foremost among these is counterparty risk, which is the technical term for the risk that the person you’re trading with defaults on their obligations. Up until now, if you offered, for example, to delegate your NFT to someone so they could farm an airdrop in exchange for some ETH, you had no recourse if they didn’t pay up except calling them out and revoking your delegate rights. In return, someone renting or buying those rights has had no protection from the risk that you might change your mind and revoke the delegation.
Liquid Delegate offers a solution allowing buyers and sellers to use an escrow feature — but with a novel, buy-on-demand experience.
Foobar explained the flow in a post on X.
“1) Deposit spot asset into escrow
2) Receive Principal Token and Delegate Token
3) Sell DT on the marketplace.”
Let’s say you hold a sweet Bored Ape, and you want to rent out the delegate rights for a couple of months because an airdrop is coming up, and you’d rather have some ETH now than airdrop later.
You deposit the Ape into a smart contract, which holds it in escrow. You then receive two freshly minted tokens—a principal token, which is an ERC-721 representing the right to claim the deposited NFT, and a delegate token, which represents the delegation rights on the NFT—the part you want to rent out.
While you keep that principal token, you can list the delegate token for sale on Liquid Delegate’s marketplace. An apeless buyer who covets that airdrop buys your delegate token. A couple of months elapse, and the third-party buyer of the delegate token farms the airdrop. Then, when the time limit (of a couple of months) that you set initially expires, the delegate token spontaneously combusts! The buyer gets to keep their airdrop but can’t use the delegate rights anymore. After the delegate token burns, you are free to take the principal token you’ve been holding and get your Ape back out of escrow.
While there are plenty of sites where NFTs are used directly as collateral for loans, these can involve escrow procedures that can be intimidating to novice users, and there’s always the risk of liquidation if the volatile markets tank the price of your valuable NFT.
During beta testing, foobar and the team found that users felt that traditional escrow commitments—for NFTs or crypto payments—were too complex. The result is a novel primitive in rights delegation—that also opens up delegation as an asset that anyone can trade. “Users can now tokenize, transfer, and trade delegate tokens as native ERC721s with zero counterparty risk, zero collateral requirements, and zero liquidations,” foobar posted on X.
The marketplace is open to all NFTs that support Delegate Registry, and creators can get a cut of trading fees. “Projects are eligible to earn a share of trading fees of all related Delegate Token assets on our native marketplace,” he posted.
Built on top of the v2 delegate.cash tool, which already secures $750million in valuable NFTs, foobar and team say they’ve designed Liquid Delegate with the ability to scale—according to foobar, it can easily handle tens of billions of dollars worth of assets—and other developers can build on it. Applications could include facilitating a marketplace for governance votes in DAOs.
“I’m excited for other projects to build on top of this – Delegate Tokens are a perfect primitive for NFT staking, and the world of ERC20 governance incentivization is ripe for exploration,” foobar told nft now.
If you’re holding NFTs that support delegate.cash, you can rent their delegated rights now by heading to https://delegate.xyz/marketplace/ethereum.
You can also take part as a trader—if you think you’ve got the information to make a play on the future value of delegated rights. “Traders can benefit from buying up future [opportunities like] airdrops. And holders can benefit from ease-of-use, like a concierge service that makes sure they don’t miss anything and get paid upfront to boot,” he said.