What is JPEG'd?

JPEG'd is an innovative new platform mixing NFTs with DeFi. Users deposit their NFT as collateral and are able to borrow a loan based on it's value. This unlocks instant liquidity from the NFT while allowing users to retain ownership of it. The platform is planned to launch Q1 2022 and will support CryptoPunks at launch.

There are two main tokens in the JPEG'd ecosystem:

  • $JPEG

  • $PUSd


$JPEG is the governance token of the JPEG'd ecosystem.

It can be used to:

  • Vote on DAO proposals

  • Change interest rates

  • Change loan-to-value levels

  • Change liquidation fees

  • Adjust all other protocol fees

  • Determine where fees generated from JPEG protocol will go

  • Lock & increase credit limit of selected NFTs

  • More utility planned as product develops

$JPEG stats

  • Donation event: Feb 26-29

  • Donation event allocation: 20,826,000,000

  • Total max supply: 69,420,000,000


PUSd is a synthetic stablecoin issued by the JPEGD protocol. When a user deposits their NFT, the protocol mints PUSd and gives it to the borrower as a loan. Loans must be repaid in PUSd to receive the NFT back.

How does collateralizing NFTs work?

Collateralizing an NFT works by allowing users to deposit their NFT into a smart contract to receive a loan based off it's value. Borrowers are able to withdraw up to 32% of the value of their deposited NFT's floor price.


  • A borrower deposits their CryptoPunk into a smart contract as collateral to take out a loan

  • If the current Punk floor price is $250k, the borrower can withdraw a loan worth up to $80k (32%). Let's assume they borrow the maximum amount.

  • The protocol mints the borrower $80k worth of PUSd

  • In order to get their NFT back, the borrower must repay the $80k loan + 2% interest

What are the risks of taking a loan?

If the debt/equity ratio of a position goes over 33%, the deposited NFT gets flagged for liquidation. If a liquidation occurs, the DAO acquires ownership of the deposited NFT.

So how can a debt/equity ratio go above 33%?

After taking a loan, if:

  • NFT floor price increases = Debt/Equity Ratio decreases

  • NFT floor price decreases = Debt/Equity Ratio increases

The risk of getting liquidated increases as the deposited NFT's floor price declines. To mitigate this risk, borrowing less than 32% will give you a greater buffer before getting liquidated.

Liquidation math explained

The following equation can be used to calculate debt/equity ratio:

Amount borrowed (USD) / NFT floor price (USD)

Let's continue the CryptoPunk example from earlier and plug the numbers into this equation.

Assumptions for this example:

  • Initial Punk floor = $250k

  • Amount borrowed = $80k (32%)

Pretend the Punk floor price has now decreased to $240k. After plugging in the new numbers to this equation we get the following:

$80,000 / $240,000 = 33.33% debt/equity ratio

Since Punks dropped in value the borrower's debt/equity ratio is now 33.33%. The borrower would get liquidated in this scenario because the ratio went above 33%.

As mentioned earlier, taking a more conservative loan gives users a bigger buffer before being liquidated. Let's re-do this equation assuming the borrower withdrew 25% of their limit instead of 32%.

Initial floor: $250,000

Amount borrowed: $62,500 (25%)

What will these numbers look like if the Punk floor price drops to 96 ETH again?

$62,500 / $240,000 = 26% debt/equity ratio

In this scenario the borrower would NOT be liquidated and benefits from more peace of mind if the floor price decreases.

Why does the protocol liquidate positions that exceed 33%?

This is done to make sure the DAO never is at risk of taking a loss from borrowers not repaying loans.

When borrowers take out a loan, the DAO receives temporary possession of their NFT. If the NFTs in the DAO's possession begin losing their value, the DAO has an increased risk of borrowers not paying their debts.

Let's imagine if there was no limit in place and the debt/equity ratio exceeds 100%. The borrowers are no longer incentivized to pay back their loans because the money they borrowed would be worth more than the NFT they deposited. If that happened the DAO would be stuck holding everyone's jpegs at a loss.

Having a safe limit on the debt/equity ratio ensures the DAO doesn't find itself in a vulnerable position. A safe limit gives the DAO plenty of time to sell the NFT or decide how to use it before they find themselves in an unprofitable situation.

Remember that the liquidation percentage is adjustable via governance and can be changed as the community sees fit.

What happens to liquidated NFTs?

NFTs that get liquidated become acquired by the DAO. From this point the DAO may choose to hold the NFT or sell it on the secondary market.

If users don't want to risk losing their NFT in case of liquidation, they can elect to purchase insurance when drawing the loan.

Insurance mechanism

JPEG'd has a built-in insurance mechanism which allows users to reserve & buy back their NFT after it gets liquidated. Users can elect to purchase insurance for a non-refundable 1% fee.

How do users repurchase their liquidated NFT?

  • Purchase initial 1% Insurance fee

  • Repay the debt + accrued interest

  • Pay a 25% liquidation penalty

JPEG Cards (NFTs)

JPEG Cards are the initial NFT collection released by JPEG'd. The cards can be staked to earn 1% of the supply over a 1 month period. Some of these cards will have additional utility on the after this period is over but the specific cards are yet to be confirmed. Speculators think the cards with the "JPEG'd Cigarette" attribute will receive additional future utility.

NFT stats

  • Supply: 1,000

  • Mint price: 0.3 ETH

  • Max 2 per address

How does JPEG protocol earn revenue?

  • Deposits

  • Interest

  • Liquidations

  • Arbitrage on PUSd liquidity pools

  • Earnings from idle assets in Treasury


Paper Ape's Take

I've been waiting for a Non-fungible Debt Position platform like this to be created for a long time. It'll be especially useful for people that own an expensive NFT and want to utilize some of it's value without selling it.

There are a few planned features I didn't mention above because they won't be available upon launch and aren't guaranteed to be added to JPEG'd. The most interesting of these plans is the introduction of Liquidation free vaults. This would presumably allow users to earn a steady yield from depositing an NFT without risk of it getting liquidated. Being able to earn yield without risking liquidation could be a huge factor for drawing in more users.

The team is also looking into decentralized perpetual futures based off NFT floor prices. I wouldn't put too much emphasis in these plans at the moment but they do provide a glimpse into the team's vision for creating DeFi primitives based off NFTs.

We're still very early in the grand scheme of NFTs. Infrastructure must be built in order for NFTs to achieve their full functionality and I think JPEG'd is a step in the right direction. This is a clear evolution from older liquidity vaults like NFTX so I'm excited to see where this takes the NFT x DeFi market.

Did someone say DeFi 3.0?

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