We explore the Redeem-to-Exit feature, a ground-breaking feature of the Liquid NFT Marketplace, in this chapter of the Trade to Earn 101 series. This novel technique increases the value of remaining NFTs by decreasing supply while simultaneously giving investors access to liquidity at any time. We explain the redeem-to-exit function’s benefits, how it transforms the NFT space, and how it works below.
The Redeem-to-Exit Function: What Is It?
NFT owners can destroy (burn) their NFT in return for its liquidity value thanks to the Redeem-to-Exit mechanism. Even in markets with little demand, this feature guarantees that each NFT maintains a steady and increasing locked value, providing investors with a dependable exit plan.
How It Operates
Owners of NFTs decide whether to redeem their NFT.
The NFT is taken out of circulation for good.
The owner receives their money back, less a 20% burn fee.
For instance:
An investor will receive $160 after fees if they redeem an NFT with $200 in liquidity.
The Redeem-to-Exit Mechanism’s Cash Flow
The 20% charge is distributed as follows when an NFT is redeemed:
10%: Given to the project owner or creator as a reward for continued project expansion.
5%: Increased the value of the remaining NFTs by adding to their liquidity pool.
5%: Set aside for platform costs to keep things running smoothly.
For instance:
For $200 worth of NFT:
The owner gets $160.
The creator receives ten dollars.
The liquidity of other NFTs is increased by $5.
$5 goes towards platform fees.
The platform, investors, and creators all gain from this distribution, which fortifies the ecosystem.
How NFT Value Is Affected by the Redeem-to-Exit Function
1. Value Is Driven by Scarcity
By decreasing supply, redeeming NFTs raises the remaining assets’ potential value and rarity.
For instance:
If 2,000 of a 10,000 NFT collection are redeemed, the remaining 8,000 NFTs are scarcer, which increases their perceived worth.
2. Growth in Liquidity
The remaining NFTs’ value will increase over time thanks to the 5% allocation to liquidity pools.
For instance:
The liquidity pool expands after redemption, raising each NFT’s base value.
3. Stability of the Market
During market downturns, the redeem feature provides investors with a stable exit route by reducing panic selling.
For instance:
In order to preserve market equilibrium, investors redeem NFTs rather than reducing the floor price.
The Redeem-to-Exit Function’s Advantages
Regarding Investors:
Guaranteed Liquidity: Makes money available without depending on purchasers.
Increased Value: By creating scarcity, redeeming NFTs increases the value of the remaining assets.
Market confidence stabilises the ecosystem by lowering pressure to sell at a loss.
To the Creators:
Sustainable Revenue: Burn fees generate recurring sources of income.
Stronger Community: By maintaining asset value, the process promotes loyalty.
Regarding the Marketplace:
Ecosystem Growth: Each redemption helps liquidity pools.
Aligned Incentives: The platform, investors, and creators all benefit from fee distribution, which guarantees growth.
A Real-World Analogy of the Redeem-to-Exit Function in Relation to Conventional Exit Strategies
Conventional NFTs require a buyer in order to be sold, much like flea market treasures.
You can pay out liquid NFTs with the redeem-to-exit feature at any moment, just like redeemable bonds.
Illustrations of the Redeem-to-Exit Process in Operation
1. The scenario of a market downturn
During a market downturn, an investor redeems their NFT, regaining the majority of their investment without underselling.
2. Reducing Supply to Increase Value
Scarcity rises as NFTs are redeemed, increasing the value of the remaining assets.
3. Example of Creator Revenue
The creator receives $50 from a redeemed NFT with $500 liquidity, guaranteeing long-term project funding.
The Revolutionary Nature of the Redeem-to-Exit Function
1. Removes Reliance on the Market
Finding buyers is no longer the only way for investors to obtain liquidity.
2. Aligns Rewards
The marketplace, investors, and producers all gain from fee distribution.
3. Promotes Long-Term Worth
Long-term asset growth is ensured by expanding liquidity pools and decreasing supply.
4. Maintains Ecosystem Stability
The technique lowers market volatility by substituting restricted liquidity availability for panic selling.
FAQs Regarding the Redeem-to-Exit Role
1. What is the role of redeem-to-exit?
Because of its liquidity value, it enables NFT owners to burn their NFT.
2. How does it operate?
The NFT is taken out of circulation upon redemption, and the owner receives their money back after paying a fee.
3. How is value increased by redeeming NFTs?
Redeemed NFTs decrease supply, increasing the rarity and value of the remaining assets.
4. What makes it significant?
It ensures creators receive continuous income, stabilises markets, and assures liquidity.
5. What distinguishes it from conventional tactics?
Liquid NFTs offer immediate redemption access, while traditional NFTs need purchasers for liquidity.
Next in the Series
Read on to learn how Liquid NFTs maintain and increase their value over time in Part 6: The Continuous Growth of Liquidity Pools and Floor Prices.
