MetaStreet Capital Vaults have four participants: Note Originators, Capital Borrowers (implicit participation), Capital Depositors and Vault Governors (currently MetaStreet DAO). Each participant has unique motivations for their actions, but participation by all four groups allows for vaults to grow in depth and breadth, ultimately improving capital efficiency of NFT Promissory Notes.
These participants are the facilitators of yield for any MetaStreet Capital Vault. Note Originators sit between MetaStreet vaults and P2P Promissory Note Marketplaces, using their own capital and labor to source Promissory Notes directly from Capital Borrowers looking for capital on P2P Marketplaces. Once the Note Originator has sourced a Promissory Note on a P2P Marketplace, he sells that note to a MetaStreet Capital Vault.
Why do Note Originators want to sell notes?
- There is a spread between the rate originated and the rate MetaStreet Capital Vaults will accept (instant arbitrage).
- There are other incentives the Note Originator is attempting to optimize for (ie, lending volume on a P2P Marketplace out of anticipation of an airdrop from either that P2P Marketplace or the Collateral creator).
- The Note Originator wants to exit his position prior to the expiration of the Promissory Note for any number of reasons (ie, he can realize a present value gain or market sentiment has changed and he can redeploy that capital elsewhere for a better return).
A Note Originator can be anyone with crypto assets! However, over time, MetaStreet expects Note Originators will largely be represented by sophisticated market participants that specialize in specific types of NFTs (ie, avatars vs land vs p2e assets). Before MetaStreet, the Note Originator must be both a market expert and maintain a large balance sheet in order to participate in the NFT Promissory Note market. The advent of the MetaStreet Capital Vault removes the need for Originators to maintain large balance sheets in order to be rewarded for their labor and expertise, leveling the playing field for all participants.
While not explicit participants in the MetaStreet ecosystem, the Capital Borrowers represent a critical component of the economic engine powering all participants in MetaStreet. Capital Borrowers are the source of yield for MetaStreet vaults, creating Promissory Notes with their NFTs posted as Collateral, and repaying those Notes with interest at the end of the term.
Why do Capital Borrowers want to borrow capital?
- The Capital Borrower owns an NFT and does not want to sell it (to avoid capital gains tax, to continue participating in capital appreciation, to continue generating yield from the asset, etc), but wants to unlock some liquidity to generate additional return elsewhere.
Capital Borrowers can be anyone with NFTs that are approved for MetaStreet Capital Vaults! Over the long run, MetaStreet expects that the largest Capital Borrowers will be sophisticated NFT / Metaverse funds or DAOs that operate primarily with financial returns in mind and seek to maximize returns with responsible amounts of leverage.
These participants are the source of funds for any MetaStreet vault. Capital Depositors provide capital (stablecoins, ETH, etc) to MetaStreet Capital Vaults, which are the funds used to purchase notes from Note Originators. Capital Depositors can allocate capital across different vaults (representing different asset types) and across the capital stack within each vault (representing higher or lower risk, and return) to formulate an optimal risk / return profile, customized to that individual’s perception of risk and return.
Why do Capital Depositors want to deposit capital?
The Capital Depositor manages a portfolio and wants to diversify that portfolio to have exposure to NFTs, but:
- has a large amount of capital that would require tremendous time (labor) and expertise to directly originate notes.
- has a small amount of capital to allocate that would carry tremendous idiosyncratic risk if used to directly originate notes directly on p2p platforms.
- has a uniquely risk averse or risk loving mentality and wants his capital to sit in a very specific band of potential outcomes (either extremely risk averse, with only allocation to a senior position, or extremely risk loving, with only allocation to a junior position).
The Capital Depositor is motivated not just by financial returns from his position in the MetaStreet vaults, but also by the financial returns of the underlying NFTs acting as collateral for the notes held in the vault. Through capital deposit, the borrowing liquidity for the NFTs in question is expanding, lowering the cost of capital and improving the creditworthiness of the NFT (and implicitly, the value associated).
A Capital Depositor can be anyone with crypto assets! A few examples of readily apparent Capital Depositors are DAO treasuries (likely senior position, looking for low risk yield) and liquid fund managers (depending on the mandate of the fund, could be focused on either senior or junior positions), with an obvious bias towards any Metaverse / NFT focused DAO or fund that can further benefit by standing up a thriving credit market to support the virtual economy in which they are already investing.
These participants are the administrators of the platform, drivers of both protocol-wide upgrades as well as daily and weekly operations. Operational responsibilities cover a wide array of form and function, but everything can be connected to the goal of answering a single question: is the protocol optimizing risk-adjusted capital efficiency? Please visit the Governance section (NOT YET LIVE) to understand how the MetaStreet economic engine uses the role of Governor to accomplish this goal.
The MetaStreet Protocol provides infrastructure for Capital Vaults that acquire NFT Promissory Notes at prices determined by a Note Pricing Oracle. Vault ownership by the Capital Depositors is split into Senior and Junior positions, which reflect variation in risk/return profiles. Determination of approved Collateral Types and Promissory Note characteristics is set through decentralized governance. MetaStreet DAO provides open source research to inform this decision making process. At initial Protocol Launch, governance responsibilities will be maintained by MetaStreet DAO, which will be systematically decentralized over time.