Collectibles Exchange: An Innovative DEX for NFTs - A Swapping Service for Non-Fungible Cardano Native Assets

[GENERAL] Name and surname of main applicant

Rares Kövesdi (NewMindflow)

[GENERAL] Email address of main applicant

catalyst@newmindflow.com

Additional applicants

Anamaria Kövesdi (NewMindflow); CENT

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

6

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language.

No

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

No

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.” .

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

No

[GENERAL] If NO, please describe which outputs are not going to be open source. If YES, please write “Project will be fully open source.”

We will open source all the smart contracts developed for this project. However, the project will not be fully open source as we will not be open-sourcing the off chain code, and the UI components.

[METADATA] Category of Proposal

NFTs

[IMPACT] Please describe your proposed solution.

Much of the existing Cardano NFT services and infrastructure are centered around financial aspects. Marketplaces, lending protocols, staking platforms and statistics websites are all focused on the financial aspect. However, most NFTs are primarily digital collectibles, not financial products. Yet there are almost no services built specifically with collectors in mind. Tapping into this unexplored niche within the NFT space, Collectibles Exchange aims to provide a comprehensive and complex platform for the swapping of non-fungible Cardano native assets.

Current data from taptools.io indicates that less than 10% of NFTs within the top 25 Cardano collections by market cap are listed on marketplaces. This implies that a substantial majority of NFT owners are not seeking to liquidate their assets into ADA. Yet, there is an untapped interest among holders in exchanging their assets for other NFTs, whether within the same collection or across different ones. If even a fraction of NFT owners were to engage in swap transactions, the Cardano network could see a significant increase in transaction volume.

Our proposal is to develop a service that facilitates the swapping of any non-fungible asset for other non-fungibles, thereby addressing the relative illiquidity of NFTs compared to fungible tokens. This would also create multiple new opportunities for trades and transactions, enriching and contributing to the Cardano ecosystem. To facilitate exchanges with greater flexibility, we want to allow for more complex trades and swap conditions. This could include trading multiple NFTs for one, trading one NFT for multiple, and so on.

All of the implementation methods presented below rely, for now, on manual transactions for swaps. However, our medium to long-term goal is to create a system that can automatically match new swap offers with existing swaps in various swap pools deployed by projects and collectors. In this way, the individual swap pools become akin to liquidity pools in a conventional DEX for fungible tokens. For partially on-chain and off-chain offer models, we aim to develop an infrastructure that collects data from individual Swap Pools, uses data aggregated from marketplaces and statistics services, and automatically sends counter-offers to Proposers.

To our knowledge, Collectibles Exchange represents a pioneering initiative, not just within the Cardano ecosystem but across the entire blockchain industry.

We have already established the technical feasibility of the solution through a working prototype developed in recent months - The NFT Swap Pools [https://github.com/NFT-Guild/NFT-Swap-Infrastructure-Templates].

Implementation

We propose three distinct modes of implementation: fully on-chain offers, partially on-chain offers, and off-chain offers. Each method has its unique appeal and use-case, catering to different levels of user engagement and familiarity with the platform. 

All offer types will eventually result in an on-chain transaction. We view the main purpose of developing partially on-chain and off-chain offer systems as ways to attract and familiarise users with the platform, or as ways to engage users who are uncertain about the kind of trades they are open to. If we don’t build these options, there is a high chance that users will hesitate to lock up their assets in the smart contract of a yet unproven platform. As the platform gains momentum, we might decide to offer strictly on-chain offers, given their numerous advantages.

Fully on-chain offers (Phase 1) :

A Proposer visits the platform website, connects their wallet, lists an NFT, and sets the trade conditions. Once the swap conditions are set, the NFT is held by the smart contract until the conditions for unlock are satisfied, or the Proposer cancels the offer. Once the list transaction is finalised the offer is displayed on the service front-end, alongside the desired NFT or NFTs requested in the trade (the unlock conditions).

A Fulfiller can view the offer and initiate the swap by sending a transaction with the requested NFT(s) to the smart contract, which validates the transaction and completes the swap.

This method works best in situations where the Proposer knows in advance exactly what he is willing to exchange for his asset and is not interested in counter-offers.

We envision the service eventually incorporating a price discovery mechanism similar to an oracle, capable of assisting the Proposer in setting up the trade, determining its conditions, and potentially making trade recommendations based on real-time aggregated data for price, traits, and other criteria from marketplaces and NFT statistics services like https://www.jngl.io/ , https://cnft.tools/ or https://www.taptools.io/?Top%2025&NFTs .

In short, when creating an offer, a user (Alice, the Proposer) would specify the NFT they're offering, and the NFT(s) they want in return. The smart contract locks Alice's NFT until someone accepts the offer or Alice cancels it. If another user (Bob, the Fulfiller) wants to accept Alice's offer, they interact with the smart contract, which checks if Bob is the owner of the desired NFT(s). If he is, the smart contract facilitates the swap, transferring Alice's NFT to Bob's wallet and Bob's NFT(s) to Alice's wallet.

A typical user interaction for fully on-chain swaps:

Alice wants to trade her NFT A for NFT B. She lists NFT A on the exchange and specifies that she wants NFT B in return.

Bob owns NFT B. He finds Alice's listing and is interested in NFT A.

Bob initiates the trade through the exchange UI, which interacts with the swap contract.

The smart contract validates the transaction.

If the validation passes, the contract swaps the NFTs between Alice and Bob's wallets.

Alice now owns NFT B, and Bob owns NFT A.

Both Alice and Bob receive a confirmation of the successful swap.

We've already created a smart contract with complex on-chain validation conditions for NFT exchanges. The Swap Pools smart contract we've developed [https://github.com/NFT-Guild/NFT-Swap-Infrastructure-Templates] is the MVP of this solution. It allows NFT projects and collectors to set up their own Swap Pools easily. To our knowledge this hasn't been achieved before.

Partially on-chain offers (Phase 2) :

Similar to the first model the Proposer creates a listing, locks an NFT in a smart contract and defines a series of unlock conditions representing the offers they would consider for exchange. Unlike the fully on-chain method, though, the Proposer indicates openness to receiving counter-offers.

This allows a Fulfiller to send an off-chain counter-offer, which the Proposer can accept or decline. If accepted, the conditions of the initial offer are updated to include the counter-offer, and the Fulfiller is notified that they can now complete the on-chain swap via the smart contract.

This method would work best in situations where the Proposer has a set of swaps he knows he would accept in exchange for his NFT, but is also willing to accept other offers.

To combat spam, the Proposer can predefine a list of counter-offer requirements, for which data aggregation about prices and traits from marketplaces and statistics services would be needed.

Off-chain offers (Phase 2) :

In this model, the Proposer wishes to exchange an NFT but doesn’t have a specific exchange in mind. As a result, they cannot set up the smart contract with the initial offer and unlock conditions. Instead, they list their NFT as available for swap and open to counter-offers. After reviewing multiple counter-offers, the Proposer can accept one and initiate a transaction to a simple escrow smart contract, which only involves the counter-offer, without any additional conditions.

To minimise the potential for spam and scam attempts, the same options for setting up counter-offer filters as described above apply.

Business Model:

Our business model is simple and straightforward: we plan to charge a small fixed fee for each facilitated exchange transaction. This structure will allow us to scale the service organically. Additionally, we're exploring the possibility of launching a governance and utility token, if we determine it will be a good fit for the project once we launch. Although this is a potential future implementation, such a token could enable users to influence the platform's development, unlock premium features, or earn rewards, enhancing our platform's value and community engagement.

[IMPACT] How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?

Our proposed solution addresses the challenge directly by providing a product that adds a unique and valuable use case to the Cardano ecosystem - a comprehensive platform for the swapping of non-fungible Cardano native assets. There are currently no known services that offer this kind of functionality, making Collectibles Exchange a pioneering initiative, not only within the Cardano ecosystem but across the entire blockchain industry.

The impact of our project on Cardano will be multifaceted:

1. Increased Utility of NFTs: Our platform will significantly increase the utility and liquidity of Cardano-based NFTs by providing an efficient, trustless way to swap them. Currently, many NFT owners on Cardano hold onto their NFTs due to a lack of appropriate avenues to exchange them. Collectibles Exchange will solve this issue, giving NFT holders more options to utilize their assets.
2. Attracting New Users to Cardano: By offering a unique and compelling service, we expect to attract a significant number of new users to the Cardano network. The lack of existing platforms to facilitate NFT swaps, presents a compelling opportunity to attract a new user base.
3. Driving More Adoption: The introduction of a service that allows for NFT swapping will further strengthen Cardano's position as an innovative blockchain platform for NFTs, potentially driving more widespread adoption of the network.
4. Enhancing the Ecosystem: The implementation of our proposal will encourage more artists and collectors to mint and trade NFTs on Cardano, thereby enriching the ecosystem and contributing to its growth and diversity.

Our proposal aligns with the technical requirements, ecosystem maturity requirements, and general considerations of the challenge. As our prototype NFT Swap Pools has already demonstrated, the necessary technical infrastructure exists within Cardano for our solution to be implemented. Furthermore, the maturity of the Cardano NFT ecosystem, along with the lack of existing solutions for NFT swaps, makes this an opportune time to introduce our service.

[IMPACT] How do you intend to measure the success of your project?

Once the project is completed and deployed, to measure the success of our project, we will use a combination of both quantitative and qualitative metrics that are indicative of the platform's effectiveness, user engagement, and impact on the Cardano ecosystem.

Platform Usage Metrics: These are straightforward numerical measures that provide insight into how many people are using our platform and how often.

• Number of Registered Users: A higher number of registered users will indicate a greater interest in our platform and by extension, the Cardano ecosystem.
• Number of Successful Swaps: This metric will indicate how much our platform is being utilized. An increasing trend in successful swaps is a strong indicator of success.

User Experience Metrics: To measure the quality of the user experience, we will collect qualitative feedback from our users.

• User Surveys and Feedback: Regularly soliciting feedback from our users will provide insights into the user experience and identify areas for improvement.
• Usability Testing: By conducting usability testing, we will gain a deeper understanding of how users interact with our platform and where potential pain points might be.

Community Growth Metrics: This will measure our project's impact on the Cardano community.

• Community Engagement: The level of engagement in our online community spaces (e.g., social media, forums) can give us a sense of how our project is fostering a community.
• New Users to Cardano: By tracking the number of users who have joined Cardano because of our platform, we can gauge the growth we're driving to the Cardano ecosystem.

Ecosystem Impact Metrics: To gauge our platform's impact on the wider Cardano ecosystem.

• NFT Market Activity: We will monitor the level of activity in the NFT marketplace. An increase in transactions and overall market activity would indicate our platform's success in driving more utility and liquidity for Cardano NFTs.

These metrics are realistic because they are based on data that we can directly collect from our platform or observe from the broader Cardano ecosystem. They will allow us to regularly evaluate our progress, identify areas for improvement, and demonstrate the value our platform brings to Cardano.

[IMPACT] Please describe your plans to share the outputs and results of your project?

As described earlier, all smart contracts developed for this project will be open-sourced and made available on the project's Github page. This will allow other developers and projects in the Cardano ecosystem to leverage our work, thereby fostering collaboration and innovation within the community.

In addition to this, we commit to sharing all the outputs of the project with the Catalyst team and the community milestone reviewers. This will be achieved through comprehensive monthly reports and milestone proof-of-achievements that demonstrate our progress and deliverables.

Furthermore, we will actively seek collaboration with other relevant projects within the Cardano ecosystem. Our intention is to not only share insights and learnings but also to establish potential partnerships that could enrich the utility and user experience provided by our platform. 

[CAPABILITY/ FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability?

We have a proven track record of successfully developing tools for the Cardano community. CENT (the lead developer for this project) is a long time developer in the Cardano community. After 20 years of experience as software developer, consultant and project manager, CENT has developed tools and technology on the Cardano blockchain since 2020.

As a team, we were successfully funded for two standard setting proposals in Catalyst Fund 8, which we have successfully delivered on and closed out.

Standard for verification of NFTs:

https://projectcatalyst.io/funds/8/f8-open-standards-and-interoperability/standard-for-verification-of-nfts

NFT Royalty Standards:

https://projectcatalyst.io/funds/8/f8-open-standards-and-interoperability/nft-guild-nft-royalty-standards 

We have robust processes in place to ensure proper management and accountability of funds. Our operations are transparent, and we maintain an open line of communication with the community.

As as part of our capabilities assessment, we also did a risk analysis of the proposal.

Challenges and Solutions:

Ensuring Fair Trades

Given the unique and subjective value of NFTs, ensuring fairness will be essential. Because NFTs are unique assets, there's the possibility for less scrupulous users to attempt fraudulent trades. As the platform grows it will be important to have checks in place to prevent this, such as community-driven reputation systems and potentially a decentralised, community based, dispute resolution processes, ensuring grievances are effectively addressed and resolved.

Price Discovery

Determining the relative value of unique NFTs is a complex issue, especially for newer collections or pieces. Unlike fungible tokens, where the price can be determined by supply and demand, each NFT is unique. Without a standard currency (ADA), determining the value of trades can be challenging. To mitigate this, we plan to implement a system that will be able to do automatic order matching of any new swap offer created. We also plan to create an aggregation infrastructure that will collect data from the individual Swap Pools, marketplaces and statistics service APIs, and automatically send counter-offers to proposers where applicable. The off-chain offers system will also enable user negotiations, which will further facilitate price discovery.

Liquidity

NFTs are less liquid than fungible tokens. There may not always be a user who wants to trade NFT A for NFT B. We hope to mitigate this as much as possible with the implementation of the multitude offer mechanics described above, the connection to the existing swap pools, by enabling multi-asset swaps and possibly even the use of intermediary assets to increase liquidity.

Adoption

Building trust and driving adoption is always a challenge. Providing a smooth user experience, robust security measures, and community engagement are key. At launch, we plan to establish trust through audits & high profile collaborations.

[CAPABILITY/ FEASIBILITY] What are the main goals for the project and how will you validate if your approach is feasible?

The main goals for the Collectibles Exchange project are as follows:

1. Develop a Secure, Efficient, and User-Friendly NFT Swap Platform on Cardano: The primary goal of our project is to build a platform that facilitates the swapping of NFTs on Cardano in a secure, efficient, and user-friendly manner. We will validate this by successfully launching the platform and conducting extensive testing to ensure that it works as intended. User feedback and usability testing will also be key in verifying the platform's efficiency and user-friendliness.
2. Increase the Utility and Liquidity of Cardano-based NFTs: By providing an efficient and trustless way to swap NFTs, we aim to significantly increase the utility and liquidity of Cardano-based NFTs. We will measure this goal by tracking the number of successful swaps on our platform.
3. Attract New Users to Cardano: By offering a unique and compelling service, we aim to attract a significant number of new users to the Cardano network. We will measure this by tracking the number of new users registered on our platform.
4. Strengthen Cardano's Position as a Leading Blockchain for NFTs: We aim to further establish Cardano as a leading platform for NFTs by introducing innovative services like NFT swaps. We will gauge this by tracking community sentiment and observing the growth of the Cardano NFT marketplace.
5. Enrich the Cardano Ecosystem: Through the implementation of our proposal, we hope to encourage more artists and collectors to mint and trade NFTs on Cardano, thereby contributing to the growth and diversity of the ecosystem. We will validate this by monitoring the level of activity in the Cardano NFT marketplace and the feedback from the community.

[CAPABILITY/ FEASIBILITY] Please provide a detailed breakdown of your project’s milestones and each of the main tasks or activities to reach the milestone plus the expected timeline for the delivery.

Milestone 1: Design, User Stories, Specifications (1 month)

Key Activities: User research, designing user interfaces, writing user stories, and creating detailed project specifications.

Success Criteria: Completion of all design documents, user stories that clearly outline the user journey, and a comprehensive specification document that provides a roadmap for development.

Milestone 2: Development (4 months)

Key Activities: Development of the front-end and back-end of the platform, including smart contracts for NFT swaps, user registration and management systems, and integration with the Cardano blockchain.

Success Criteria: Completion of all development tasks, successful internal testing of the platform's functionality, and demonstration that the platform operates as specified in the project specification document.

Milestone 3: Finalizing, Testing, Promotion, and Launch (1 month)

Key Activities: Finalizing development tasks, performing comprehensive testing, promotion activities, and the official launch of the platform.

Success Criteria: All features of the platform are finalized and thoroughly tested for bugs and security vulnerabilities. Successful promotion of the platform to the target audience, and a smooth official launch with positive initial user feedback.

[CAPABILITY/ FEASIBILITY] Please describe the deliverables, outputs and intended outcomes of each milestone.

Milestone 1: Design documents, User Stories, Specifications (1 month)

Deliverables: Design documents including user interface sketches and wireframes, user stories, and project specification document.

Outputs: Clear understanding of user requirements, design for the platform, documented user stories defining the user journey, and a comprehensive roadmap for development in the form of the project specification.

Intended Outcomes: Setting a clear direction for the development of the platform, ensuring that all features and functionalities align with user needs and expectations.

Milestone 2: Development (4 months)

Deliverables: Fully functional platform, including front-end and back-end development, smart contracts for NFT swapping, user registration and management systems, and integration with the Cardano blockchain.

Outputs: A platform that allows users to register, list their NFTs, and perform trustless swaps with other users. The platform will also be able to interact with the Cardano blockchain to validate and execute transactions.

Intended Outcomes: A working platform that provides a unique and valuable service to the Cardano ecosystem, thereby increasing the utility and liquidity of Cardano-based NFTs.

Milestone 3: Finalizing, Testing, Promotion, and Launch (1 month)

Deliverables: Finalized and fully tested platform, promotional materials, and launch event.

Outputs: A platform that has been thoroughly tested for bugs and security vulnerabilities, and that is ready for public use. Increased awareness of the platform due to promotional efforts and successful launch event.

Intended Outcomes: Launch of the platform to the public (with Phase 1 functionality), attracting new users to the Cardano network, driving more adoption of the Cardano blockchain, and providing a valuable service to the NFT community.

[RESOURCES & VALUE FOR MONEY] Please provide a detailed budget breakdown of the proposed work and resources.

In our description of the project above we detailed all the components that are necessary to be developed for a feature-complete version of our product. However we have decided to split the project into two phases for better resource and cost management:

• Phase 1 - the development of the on-chain offer system
• Phase 2 - the development of the partially on-chain offers, and off-chain offer modules, as described above.

Development tasks for Phase 1:

1. Create the site for listing offers (both dex and swap pool listings)
2. Dialogs to set the trade conditions
3. Smart contract that allows unlocking according to the trade conditions and cancellation
4. Notification functionality / database and front end components
5. Trade history
6. Integration of price discovery / trade recommendation

Total: 114000 ADA

Project Management, Market Research, Marketing, UX, UI for Phase 1:

1. Project Management
2. Market Research
3. UX Design
4. UI Design
5. Promotion 
6. Catalyst Administrative Tasks (monthly reports + milestone proof of achievement submissions + closeout report)

Total: 86000 ADA

Services for Phase 1:

1. 2 cloud servers for 6 months (1 for database + 1 for front-end)
2. SaaS subscriptions (Design and Project Management)

Total: 12000 ADA

Phase 1 total: 212000 ADA

[RESOURCES & VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

The cost of our project represents value for money for the Cardano ecosystem in multiple ways.

Firstly, our proposed budget reflects industry standards for software development, taking into account the unique requirements and complexities associated with blockchain and smart contract development. Our development team has years of experience in these areas and our rates reflect their level of expertise. 

Secondly, the costs of this project are not only linked to software development but also cover essential aspects such as project management, market research, user experience design, and marketing. These are crucial for the success of the project as they ensure that we develop a solution that is not only technically sound but also meets market needs and provides a user-friendly interface.

Furthermore, we are committed to transparency and responsible budget management. As part of this, we will share regular updates on our progress and budget expenditure with the Catalyst team and the Cardano community.

Lastly, the value proposition of our project is not just in its immediate outputs but also in its potential to stimulate further innovation within the Cardano ecosystem. By open-sourcing our smart contracts, we aim to contribute to the pool of resources available to other developers and projects in the ecosystem.

[IMPORTANT NOTE] The Applicant agreed to Fund10 rules and also that data in the Submission Form and other data provided by the project team during the course of the project will be publicly available.

I Accept