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How does Free Market work?
Once the NFT is Quantized and the Quantization Phase is over the NFT goes in Free Market, this phase helps the asset to find its true fair value and to provide a liquid shares market for new traders.
Free Market Key Concepts:
As we said, unlike the Quantization Phase where the fraction price is fixed, every time a trader buys a fraction, the vAMM mints new Shares and increases the value of both the shares and the NFT price. Every time a trader sells a fraction, the vAMM burns the sold fractions and decreases the shares and NFT price.
The liquidity in the free market for free market traders is assured because the early bidder of the quantization phase cannot sell through the vAMM but only through a Peer 2 Peer mechanism also governed by the vAMM price system.
Let's see all the technical steps of the Free Market
Creation of the virtualized liquidity pool
As soon as the Quantization Phase (QP) is over, a liquidity pool (Shares/wETH) is created immediately. The pool will manage the exchanges during the free market. The pool of liquidity is sized through a lever 10, to ensure that the exchanges themselves do not influence too much the trend of the share price and therefore of the entire asset.
So the pool is a virtual representation of the quantity of the Shares minted (multiplied by 10) and the corresponding value in wETH (multiplied by 1.03)
So to Make an example for an NFT that enters the free market at 1ETH value we will have a Virtual Pool (the pool starts empty at the creation) of 10 shares and 10.3 wETH
All buy/sell operations in free market will keep the product of this Virtual Quantity of Shares and Virtual Quantity of wETH constant.
Shares/wETH exchange
As with the QP, in the Free Market phase, a purchase of Shares through wETH leads to the minting of new tokens, while a sale leads to its burn. In this phase, however, the formula used to obtain the quantities of tokens after the exchange is more complex and you can check it on the product doc.
When shares are sold to obtain wETH the scenario is the opposite and leads to the burn of shares and to an update of the values of the Virtual Quantity of Shares and wETH in the pool.
The platform retains the fee, or passive interest only during the exchange of wETH for Shares, this means that fees apply when there is a purchase of shares, but not when there is a shares sale.
The Free Market Fee is 0.3% of the amount of wETH traded, of which 0.1 goes to the platform and 0.2 is paid to QP backers as if it were a liquidity fee of a DEX
Share price
The price of the Shares is calculated on each exchange, and after the Virtual Quantity of wETH and Virtual Quantity of Shares has been updated and is the Virtual amount of wETH divided by the virtual amount of shares in the pool.
NFT price
NFT price is linked to Share price, in this way is more probable that shareholders will obtain a gain at the NFT sale.
Due to the typical shapes of bonding curves that govern the share price, we have introduced a system to mitigate the NFT price growth as the mint of new shares increases. The mitigation consists of discounting the NFT price by a factor of 0.55 relative to the liquidity deposited in the vAMM.
Curious about how the NFT price grows? Try the Free market vAMM simulator here
What to know the Math formula of the Free market? learn more on Product Doc
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