JPEG’d Protocol business model analysis. the project using NFTs as a collateral asset.

Analyzing the JPEG’d Protocol model will help you understand how to capture value for JPEG tokens as well as the future and vision of the project.


JPEG’d is a protocol built on Ethereum that allows NFT holders to open Collateral Debt Positions (CDPs) to borrow money (PUSD) through the use of NFTs as collateral. challenge.
The two main active tokens on the project are JPEG (native token) and PUSD stablecoin:

  • JPEG is the project’s governance token, used to manage the project and where the project captures value for the JPEG holder.
  • PUSD Stablecoin is a type of Stablecoin that is mortgaged by NFT and is kept stable, corresponding to 01 PUSD = 01 USD.

If Maker Dao only allows high-quality, reputable assets as collateral, Unit Protocol enters a whole new market of NFTs, allowing investors to mint Tokens from collections while the NFT set is in possession.

Business model analysis

The working mechanism of JPEG’d is similar to Maker DAO.

My Vault

To be able to start interacting with JPEG’d, you will first need to access the My Vault section of the protocol and select the NFTs you want to offer as collateral to be able to borrow PUSD.
You can choose from many different types of NFTs, as long as those NFTs are supported by the protocol.
After providing NFTs offers, you will be able to borrow PUSD

At launch, only CryptoPunks NFTs will be able to mint PUSd on the protocol. shortly after launch, EtherRocks, and then Bored Ape Yacht NFTs will be added to the protocol. Thereafter, JPEG token holders can submit proposals to governance to add new collections.

PUSD lending mechanism

This is the main feature of the JPEG’d protocol. The maximum amount of PUSD minted is 32% of the value of the collateral.
For example: The value of the NFTs provided to the protocol is $150, then it will only be minted up to $48

PUSD mint/redeem mechanism:


  1. the user will deposit his NFT into the vault as collateral
  2. Based on the value of collateral, users will borrow a certain amount of PUSD. PUSD can be used in many cases such as swaps, liquidity provision or earning investment opportunities in other protocols.
  3. However: The amount of PUSD will be deducted 0.5% as a deposit fee. For example: if a user deposits a valid NFT and draws 1000 PUSd as debt, he will receive 9995 in PUSd (1000 PUSd debt less 5 PUSd deposit fee)


  1. When the user wants to withdraw his NFTs. User will have to repay PUSD borrowed + at 2%/year interest.
    • The PUSD portion is burned
    • The interest portion will be transferred to the project Treasury.
  2. After returning PUSD + interest, users will be able to withdraw their NFTs.

Auction mechanism

To ensure that the PUSD is stable at a pegged $1, when the collateral Vault drops to a certain percentage, the assets in the Vault will be liquidated to repay the debt.

  1. To become a bidder first, the user must lock at least 5M $JPEG and lock the JPEG card inside the auction contract.
  2. When the user is liquidated. The DAO will repay that liquidated PUSD debt to the user from the original Treasury reserves. The user NFTs will then be auctioned.
  3. The winning bidder will transfer ETH to JPEG’d. This ETH will be transferred to the project’s Treasury
  4. JPEG’d will transfer collateral (NFTs) to the winner.

Insurance mechanism

To avoid the collateral being liquidated and auctioned. Users can purchase insurance for their CDP contracts to can repurchase their NFTs from the DAO after repaying their outstanding debt and a 25% insurance fee. The 25% insurance fee is based on the user’s outstanding debt which is principal plus any accumulated interest. Insurance is a 5% non-refundable fee assessed when the initial debt is drawn, and any new debt thereafter.

For example, a user elects to purchase insurance and opens a CDP for 10,000 PUSd. The 5% insurance fee along with the 0.5% deposit fee is assessed and he receives 9,450 PUSd. eventually, the debt on this position grows to be 15,000 PUSd and the user is liquidated due to adverse market conditions. The user must repay the 15,000 PUSd outstanding debt plus a 3,750 liquidation fee (25%) back to the DAO. After the DAO receives these funds the NFT will be returned back to the user. If the funds are not sent to the DAO within 48 hours of liquidation the insurance coverage lapses and the NFT is now owned by the DAO.

Capture Value for the Holder

Currently, Unit Protocol captures value in 2 main ways:

  • Governance: JPEG holders can vote for important metrics in JPEG’d Protocol such as Stable Fees, Collateral Ratio, Liquidation Ratio, etc. As a debt trading protocol, financial ratios play a very important role for JPEG’d Protocol, because it is related to lending risks, so the role of JPEG holders is very important.
  • Lock: The JPEG is locked in the auction contract so that the user can become a bidder. Thereby, helping to reduce the supply limit circulating in the market.

According to the project’s Whitepaper, JPEG’d is locked to participate in the auction for only 7 days, after which the user can withdraw and do other things. So in the short term, this model can help reduce the supply of JPEGs temporarily, but in the long run, it won’t work.
The project said the fees from the lending as well as the proceeds from the auction will be transferred to the Treasury of the project. However, this money will be used to pay for future liquidated debts. Whether the project uses this Treasury to capture for the Holder or not has not been mentioned.
Overall, the project still doesn’t have many captures for JPEG’d holders.


JPEG’d Protocol is one of the first Lending stablecoin projects using NFTs as collateral in the market. This is a very different step.

  • Overview of the working model of JPEG Protocol and PUSD, we draw some main points as follows:
  • The working mechanism of JPEG is similar to other Over collateral stablecoin projects. However, the project chose NFTs as collateral instead of crypto assets
  • The project includes an insurance mechanism to allow users to redeem their mortgages
  • The main Oracle that JPEG uses is Chainlink.
  • The Governance and Lock JPEG mechanisms are the two main mechanisms that give value to the current JPEG holder

The above is an overview analysis of the JPEG Protocol Model. What do you guys think about this project? Please leave your comments in the comment section below so we can exchange and discuss.

Find more information about JPEG’d





If you have any questions, comments, suggestions, or ideas about the project, please email [email protected].

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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