# ⟆ᕈ∈⊂Tre
"where one becomes multitudes"


## Introduction to spectre

The NFT landscape blew up at an exponential rate, from a capitalization of 41M/$ in 2018 to 340M/$ in 2020. Impacting a variety of sectors such as gaming, sports, art, collectibles, metaverses and domain names.

Spectre is a protocol that allows anyone to mint ERC20 tokens backed by NFTs, permissionlessly, without sign-up or registration. Spectre opens up NFT ownership to the crowds, breaking the barbed wire of the "one and indivisible private property". This way **Spectre overcomes the limits of exclusive NFT-based markets by turning them into fungible and liquid assets anyone can buy, sell, pool and use in different applications.**

Spectre is the simplest, safest, and fastest way to split your NFT into fractions available for all.

## What is Spectralization ?

Spectralization is the initial process of turning a non-fungible ERC721 token into fungible ERC20 tokens. To achieve this, an NFT owner or creator just has to lock their NFT into a smart contract and set the name, symbol and maximum cap of its ERC20. By doing this, the owner or creator also renounces their NFT ownership in order to become its guardian.

## How it works

Spectre has been designed with simplicity in mind so that newcomers are also able to participate in the game of NFT fractionalization.

As shown in the sketch below, the creation of liquidity above an NFT respects a simple and minimalistic logic. Spectre smart contracts lock the NFT of your choice and leave the owner with four steps to set up the NFT's fractionalization.

**1. NFT locking.** Anyone can natively mint or use an existing NFT, lock it, and initiate the spectralization process.

**2. Spectre issuance.** The NFT owner sets the *total supply* of the associated spectre ERC20 they want. One can also choose to automatically allocate part of this supply to beneficiaries (themselves and / or to any other set of Ethereum addresses - early supporters, friends, etc.) and add the name and the symbol of its spectre ERC20.

**3. Buyout multiplier.** **They define how many times the market cap should be paid to buyout the NFT.**

**4. Supply channeling.** Spectre is integrated with Balancer V2 to manage the minting of supply and bootstrapping its liquidity. This means that once the parameters of the issuance are set, the liquidity bootstrapping can start. Once the three previous steps have been completed anyone is able to bid on the NFT in order to buy part of the token supply. Just as you do on Foundation, Opensea or Rarible but this time to buy shares of a NFT. Bids are accepted or rejected by the guardian. Each accepted bid results in the minting of ERC20 tokens, thus diluting the property of the NFT into the multitude of buyers.


## Target Users

The few existing platforms on the ecosystem of fractional art are mainly aimed at initiated crypto users and those dapps mainly split bluechip NFTs such as cryptopunks, cryptokitties gen-0, cryptocubes and so on. It's NFT trading for crypto-insiders.

Our purpose is radically different because we want to make fractional art ownership an artistic experience in its own right. We want to offer everyone the opportunity - hence the permissionless approach - to play with the idea of fractional property.

Indeed, fractional art offers several advantages :

1- The shift from private, single and exclusive ownership, to shared ownership allows to build communities around the NFT itself. A token representing a share of a work allows the conversational gathering of all owners, as we saw everyday on crypto twitter with the case of the [B20 token](https://b20.whalestreet.xyz/). But fractional art ownership should not be reserved to a handful of artists and traders already well appointed with the nascent crypto art market. It should be open to all and allow the gathering of micro-communities that tend to gravitate around artistic talent. Outside the bluechip sphere there are many artists whose works remain affordable but too expensive for the majority. Indeed not everyone can afford to spend 1 or 2 ETH on a NFT. This whale bias prevents artistic communities from extending support towards artistic production. In this light, overcoming the logic of exclusivity also means **establishing a new link between real artistic audiences and creators**.

2- In traditional art the owner of an artwork makes use of it as they please. The fractional ownership of a work of art, on the other hand, makes it possible to **gather the "fans"** of the work around discussions but also around decision making. Indeed, as each work is indexed by tokens, it is up to the holders of these tokens to decide what happens to the artwork (manipulation, resale, exhibition, [burning](https://twitter.com/0x_b1/status/1360641935048912908), etc...). Ultimately, fractional art holds the promise to **transform the work of art into a true organizational object**. We plan to address this issue over the long term.

3- One of the key features of fractional art is that it allows the porting of **token distribution patterns to the scale of unique pieces**. Indeed, **the fractionalization of a NFT calls for the thoughtful redistribution of the tokens.** The owner of the NFT can privilege early supporters, partners and friends with token allocations. The inoculation of such patterns into the NFT itself is not only a way to extend DeFi to the realm of cultural work, it is also the opportunity for the artist or the collector to maintain ownership relations in works that are important for them. Using Spectre, an artist can choose to sell for instance only 80% of the NFT supply and keep the rest. This way creators can choose not to be subjected to the first and most often lowest price.

4- We expect developers to also find an interest in Spectre since the creation of liquid NFTs opens a whole new playground for composable blockchain applications like DeFi, allowing anyone to **use the spectralized NFTs as collateral for any other kind of asset**. In that sense, Spectre makes art-backed stablecoins much more of a possibility.

5- For curators and traders, indexing / smart pooling of liquid NFTs effectively mean well-diversified granular portfolios. This way every wallet can become a museum of sorts, dynamically expressing its curators' preferences at any given time. Such an advent signifies a re-negotiation of powers that are traditionally occupying the art valuation supply chain via the **collective curatorial function** of this new medium.

## The supply issue

The purpose of NFT-fractionalization is to bypass traditional non-fungible markets limitations and turn them into fungible and liquid markets. Problem is: **how to bootstrap and shape those markets?**

In the past years, AMMs such as Uniswap or Balancer have drastically simplified the process of market-making for existing ERC20s: let's just incentivise holders to deposit part of their assets in a liquidity pool and have simple reserve-based maths automatically derive the price of those assets. However, the question of how those tokens have been put in circulation in the first place, or how this circulating supply has been decided, etc. are left outside of those AMMs scopes. Most of the time, those decisions have actually been taken upfront by a dedicated token-engineering team.

This situation makes the operation of fractionalizing NFTs a **financially and monetarily tricky process**. First, it is hard to figure out upfront what should a spectre's ERC20 supply be: what is the size of its market, what are its expected dynamics, etc. Moreover, those parameters may change over time: a low value NFT with non-significant demand can turn into a \$20M market cap token with a very high demand in a couple of months. Consequently, it is unrealistic to decide upfront what a spectre supply should be and how fast it should be put in circulation.

Moreover, we can't require every fractionalized NFT to come up with a dedicated token-engineering team: fractionalization should be made accessible to everyone with some basic knowledge of crypto-economic systems. Thus, we believe that **the supply issue should be left to the market itself**.

## Spectre flow

Lets dive into the Spectre flow to see how fluid this is.


1- Bob would like to invest 1 ETH in a spectralized NFT. So he made a add 1 ETH in the liquidity pool.

2.1- According to the tokens price the corresponding spectre ERC20 tokens are minted and distributed in three steps:

2.2- Firstly Alice and her friends receives a share of the spectre's ERC20 overall supply in accordance to the percentage she set in the "allocation ratio" parameters during the spectralization process.

2.3- Bob receives the Spectre ERC20 tokens he just bought, from which the liquidity ratio (10%) is subtracted.

2.4- 10% liquidity ratio of Bob tokens goes into the Balancer pool therefore creating liquidity. This locked-in 10% earns Bob trading fees and he can get them back when a buyout happens.

## Buyout

The specificity of NFT-backed assets is to turn uniqueness into multitudes and non-fungibility into fungibility. However, this process can be reverted. Someone interested in owning the overall NFT and recovering its non-fungibility may buyout the spectre token as a whole to unlock the original NFT and become its owner.

Most fractionalization platforms rely on complicated buyout processes involving bids and / or community governance. Though interesting, we believe that community governance will stay disfunctional as long as L2 technologies have not become mainstream. Moreover, we believe it makes little sense to tie the buyout process to a complicated bid-based price discovery mechanism when the whole point of fractionalization is to turn the NFT market into an effective one. **Indeed, in an efficient and liquid market, the fair price of a fractionalized NFT is actually given by its market cap.**

However, we introduce two tweaks to this process. First of all, the **NFT guardian may set a buyout muliplier**. This parameter defines how many times the market cap should be paid to buyout the original NFT. It thus serve as a way to price the sacrality of uniqueness and how much it should additionaly cost to recover the non-fungibility of the NFT and its full ownership. Moreover, the price to be paid does not entail the whole market cap of the token, but the part of the market cap that is not already owned by the buyout initiator.


Of course, if a buyout happens, every token holder can burn their tokens in exchange for their share of the buyout proceeds.

:::success
**Example.** Bob owns 10% of a spectre tokens whose market cap is $1M. The buyout multiplier for this spectre token is of 1.5. Thus, Bob has to pay 900k * 1.5 = $1,350,000 to buyout the NFT.
:::

:::warning
**Note.** Such a buyout process requires a sound price oracle. This issue is discussed below.
:::

## Inflation as a bid market

Spectre has developed a simple bid process to decide of a token inflation - i.e. the minting of this token - and price this inflation. However, because those bids do not compete against a unique resource - the NFT - but a fungible one - ERC20s - it would make no sense for those bids to compete with each other. Henceforth, those bids are kept under the simple propose / accept or reject form.

**This process turns an operation familiar to current NFT artists and collectors into an efficient inflation pricing solution, bringing both buyers and guardians enough flexibility to adjust their rationale to real-time market evolutions.**

Guardians can also decide of a **allocation ratio** at spectralization time. This ratio defines how much of the minted supply is automatically routed towards the guardian. This mechanism enables a guardian to self-allocate a share of a spectre's overall supply throughout its lifecycle and thus benefit from its appreciation over time.

:::success
**Example.** Alice has spectralized a Beeple token she owned into a $BPL01 spectre ERC20 with a allocation ratio of 10%. Bob proposes Alice to mint / buy 20k of those $BPL01 tokens for 1 ETH. Alice considers the price is fair and it makes sense to dilute the \$BPL01 supply as she perceive price pressure on the open market. Therefore, she accepts Bob's offer. 20k $BPL01 are minted and transferred to Bob. Moreover, an additionnal 2k \$BPL01 is minted and transferred to Alice as royalties.
:::

:::info
_**Note.** If a spectre's guardian has not accepted or rejected a proposal after a week, the proposal get lapsed and the proposer can withdraw their funds._
:::

:::info
_**Note.** Though gas costs should natively limit spam, a guardian can set a reserve bidding price a bid must respect to be valid. For instance: 0.001 ETH per spectre token._
:::

## Channeling

To solve this issue, spectre introduces the idea of **« channeling »: the fact of natively pooling liquidity when a token is minted.** To do so, Spectre relies on a « liquidity ratio ». This liquidity ratio, set by the guardian of a spectre token at spectralization time, defines how much of the minting proceeds are automatically routed towards liquidity pooling. Thus, if a spectre token is set with a liquidity ratio of 10%, it means that 10% of its minting proceeds will be automatically routed the default Balancer pool throughout its lifecycle. This way, spectre both create a default liquidity pool - thus preventing liquidity fragmentation - and guarantees that even low cap spectre token come up with liquidity on the secondary market. Of course, any owner of the same spectre ERC20 can also pool it in this default liquidity pool to benefit from trading fees - they can even create another liquidity pool elsewhere.

The LP shares created during that operation, though « offered » by the spectre guardian on his proceeds, are set aside for the buyer. However, the buyer will only be able to unlock those shares in case a buyout happens. Thus, this LP shares constitutes a risk reward to align the buyers - initiating token inflation - incentives on the long term value of the token.

Eventually, this process guarantees that every spectre token comes up with a sufficient liquidity pool **without requiring any upfront capital for the spectre's guardian**. Moreover, it set the default Balancer pool as a trufthful price oracle to define the market cap used in the buyout process.

:::warning
The buyout process will rely on a 1 week TWAP fed from this default Balancer pool. This should neutralize any attempt at price manipulation to trick the buyout mechanism.
:::

:::success
**Note.** Thanks to this configuration, we expect large buyers - taking the largest risks - to purchase tokens through the channeling process - and eventually benefit from an outstanding profit if a buyout ever happens - while we expect small buyers to trade over the Balancer AMM.
:::

## Actors

As described above, spectre organizes each token crypto-economics around three different processes - which may happen in parallel - each calling out to three different actor profiles.
### 1- Trading

> For basic users

Less advanced users will just buy / sell tokens trhough the balancer pool. The process of buying / selling through the pool will therefore be as straightforward, for them, as swapping tokens on Uniswap.

### 2- Liquidity Providers

> Intermediate users

Users can independently pool liquidity into the balancer pool through tokens they have bought on the platform or through the open market. On top of just hodling tokens, these users can benefit from trading fee. This provides a simple way for spectre holders to get an interesting APY.

### 3- Channeling

> For long term large investors

More interested and advanced collectors will probably buy through the channeling process. First of all, this enables them to circumvent the price impact of large buys on small liquidity pool. Moreover, large buyers probably believe on the long term success of an NFT and can thus be though of as interested mecenes. Through the channeling process they can get a token bonus if a buyout ever happens.

## Tokeneconomics

The main features provided by spectre is to deterministically tie an ERC20 token - henceforth called a spectre - to a locked NFT. The supply of this spectre is set at locking time by the NFT owner.

Moreover, spectre's protocol aims to solve two main problems that characterize the crypto art market.

**The traditionnal auction models used to determine the market price of an artwork actually prohibit the participation of the smallest economic actors** unable to take place in an ascending auction which respect a linear function where «  the highest bidder wins ». This model is extremely rigid and excluding cause it limits the number of strategic participants to a small sociological sphere of individuals with high economic capital.

With spectre **we create a fully liquid market that allows anyone to participate.**

For the same reason the **art market is not able to determine the « true market value » of an artwork** because they limit the formation of demand to sociological microcosms able to take place in traditional auction models which are inherently unfair. Denying by this way the economic power that the aggregation of a multitude of small economic agents can constitute.

By opening the structuring of the demand to the contribution of the multitude Spectre offers a whole new system for artworks valuation more respectful of the interests of all art lovers.

## Spectre team

Spectre is a decentralized emanation of the [Distributed Gallery](https://www.distributedgallery.com/), a collective of artists and engineers who has been creating crypto-artworks since 2017 on the Ethereum blockchain.

## Near-Term Roadmap


## Conclusion

We are driven by the desire of turning artworks into an active multitude. The crypto-art movement is still in its infancy and has already indicated tracks going in this direction with experimentations such as NFTx, B20, and NIFTEX.

We now wish to radicalize this desire to move from a single and exclusive property to a collective property by offering a Dapp that will allow any artist or collector to play with thoses features. Features that for practical, legal and technological reasons were until recently reserved to a small elite.

Artworks have always been powerful vectors of collectives structuration and we now see that the internet of money could make us pass from the status of consumer of artworks to a world where artworks are, in their inner form, the organizational layer of tomorrow's collectives.