Flow of Operation
Example 1: pricing a NFT collection pre launch
An NFT creator looking to launch a new collection is uncertain about pricing and demand for the project. It gauges market sentiment through the Lithium protocol.
The NFT creator posts an enquiry to estimate price for the floor price item in the new collection.
A bounty of 1,000,000 LITH, an item in the new collection, and tokens representing whitelisted quota, is staked by the investors to the Lithium protocol smart contract.
Community following the NFT creator and NTF Price Experts are notified about the enquiry to offer price estimates that they believe market is ready to buy and sell the asset.
To submit their estimates, Price Experts stake fully refundable LITH to signal confidence in their price estimates. Some of them also optionally stake their reputation so that they are able to increase their Staking Limit to stake more LITH. Pricing estimates submitted are encrypted and not assessable to anyone except the Price Expert who submits them.
After the 7-day submission stage, through the Pricing Mechanism, the protocol evaluates the valid submissions and the reputation assigned to them and aggregates these submissions into a hypothetical order book for clearing and to produce the indicative market clearing price.
Price Experts are rewarded in shares of the bounty based on the precision of their pricing estimates. The highest rewards go to those with bid and/or ask pricing estimates close to the respective mean estimate.
The NFT creator assesses this pricing output and evaluates demand from level of participation among high reputation Price Experts to formulate strategy on pricing and further marketing initiatives.
Price Experts are notified of the completion of the enquiry. All participating Price Experts are entitled to claim (a) full refund of their stake, (b) their share in the reward pool based on the precision of their pricing estimates and relative stake, and (c) adjustments in RP.
Example 2: investing in a pre IPO company
A private investor is looking to invest in ordinary shares of a private company. The company's last round of fundraising took place two years ago. There were a number of protective covenants, options, and other terms attached to preference shares issued in the previous round, making the valuation not directly comparable with its true pricing for ordinary shares (especially without those special terms). In addition, the company operations and asking price have also changed substantially since the previous valuation.
Investor specify an enquiry including pricing in terms of enterprise value (EV) of the subject asset and specify a valuation date. Additional details on the company and its business are also included as background information.
A bounty of 5,000,000 LITH is staked by the investor to the Lithium protocol smart contract.
The pricing enquiry is posted and will remain open for submission for 14 days.
Lithium Finance notifies Price Experts with expertise in the sector of the asset in subject.
Price Experts review the enquiry and submit pricing estimates that they believe market participants are ready to buy and sell the asset (as of the pricing date).
After the submission stage, through the Pricing Mechanism, the protocol evaluates the valid submissions and the reputation assigned to them and aggregates these submissions into a hypothetical order book for clearing and to produce the indicative market clearing price.
Price Experts are rewarded in shares of the bounty based on the precision of their pricing estimates. The highest rewards go to those with bid and/or ask pricing estimates close to the respective mean estimate.
The investor access this pricing information and use it to frame an opinion on their investment decision.
Example 3: pricing an illiquid NFT
A group of NFT investors are interested in purchasing a limited edition NFT but given the recent hype in NFTs, they will like to ensure they are not overpaying for the asset. They post a question to the Lithium protocol and offer a bounty of 2,000,000 LITH
Lithium’s pool of Price Experts with expertise in NFTs and digital art see the question and review the parameters (i.e. what is the bounty, how many other Price Experts have participated in the answering session, what are the effects of this question on their RP, etc).
The Pricing Expert proceeds to answer the question by providing a range of values they believe reflects the current bid/ask price of the NFT and then stakes a percentage of both their RP and LITH to signal confidence in their response.
Through the Pricing Mechanism, the protocol evaluates valid submissions and the applicable reputation (RP) assigned to each answer. It then aggregates these submissions into a hypothetical order book for clearing and produces the indicative market clearing price. Price Experts that provided pricing inputs close to the consensus receive a bulk share of the bounty.
The NFT investors access this pricing information and use it to frame an opinion on the value of the NFT
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