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# System prepended metadata

title: Dew - Fungible NFT Perpetuals & Liquidity Backstop

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# Dew - Fungible NFT Perpetuals & Liquidity Backstop

Dew:
> moisture in small drops on a surface

In other words:

Droplets of liquidity gathering at a point of interest.

## The Concept

Dew is an over colatoralized synthetic erc20 token pegged to the price of an underlying NFT.

An amalgamation of 3 concepts makes dew a possibility:
- Squeeth-like perpetual.
- Ditto NFT price oracles.
- Pooltogether/Kleros sortition sum tree tokens.

Dew creates a squeeth-like peggged token using ditto and uniswap TWAP oracles. 

Okay, so it's a liquid NFT option, but how does it become a liquidity backstop? 

When liquidity runs dry in Ditto, Dew can liquidate a token (either by the token holder or at random) while simultaneously forgiving debt and using those funds to purchase a ditto clone, returning liquidity to the pair.

could dew accept clones as collatoral for dew tokens?

## The Plan

### 1. Fork & Modify Squeeth

Fork the squeeth contracts, modify the contracts to operate as a [power perp](https://www.paradigm.xyz/2021/08/power-perpetuals) of 1, and use the ditto price oracles to read the value of the underlying NFT in the chosen unit of account.

### 2. Modify Tokens for Sortition

PoolTogether adapts sortition sum trees inplemented by Kleros in erc20 tokens to represent lottery tickets. We can use this same sortition mechanism for dew deriviative tokens.

### 3. Implement Liquidity Backstop Mechanism

With sortition in place it is possible to create a backstop for liquidity in Ditto. The mechanisim itself is simple, if Dew detects liquidity on Ditto has run dry (head clone's value reading 0 or under some threshold relative to the price oracle, determined by the Dew smart contract) either a dew token holder can volunteer a token, or a token may be randomly selected to burn in exchange for a Ditto clone of the underlying NFT. 

When the Dew token is burned the contract will check if that token's owner has any debt, if so an amount of debt equal to the value of one token will be forgiven, if not some debt will be randomly selected instead. That amount is then transferred from Dew to Ditto in order to create a new clone and that clone is given to the Dew token holder in place of their burned token.