Doma Fractionalization

Doma fractionalization enables the conversion of domain NFTs into fungible tokens. This functionality allows domain investors to access liquidity while retaining ownership of their domains. It also enables crypto investors to gain partial ownership of valuable domains by holding the fractionalized fungible tokens.

Overview

Below is an overview of the components that communicate with the Doma Fractionalization smart contract.

• Doma Fractionalization: The core contract for domain fractionalization deployed on Doma Chain. By interacting with the smart contract, users can fractionalize and buy out domain ownership tokens, mint fractional tokens which are fungible, and exchange fractional tokens after a buyout. Additionally, the contract interacts with decentralized exchanges (DEXs) to fetch the prices of fractional tokens.

• Fractional Token (ERC-20): A fungible token contract for each fractionalized domain ownership token (NFT). These tokens can only be minted and burned by the Doma Fractionalization contract to prevent dilution. They can be bridged to other chains like Base and Solana. When minting tokens during the initial fractionalization, or when redeeming fractional tokens after a buyout, the user must bridge the domain ownership token or fractional token back to Doma Chain.

• Doma Launchpad: The launchpad contract provides a bonding curve for initial launch. A linear curve model with fixed start and end price is used. The launch is considered successful when all tokens are bought out. Once launched, tokens are migrated into a Uniswap V3 liquidity pool.

• Doma Vesting: Tokens allocated for a domain owner are put into vesting, to ensure full tokens supply is unlocked on a predictable schedule.

• USDC.e: The stablecoin used to buy out the original ownership token or to redeem income by exchanging fractional tokens after a buyout. USDC bridged using Layer Zero is used.

• DEX(s): The DEX(s) provide a liquidity platform for users to swap to and from fractional tokens. They also serve as the price source for all fractional tokens used by the Doma Fractionalization contract. Uniswap V3 deployed on Doma Chain is used.

For more information on the Doma Record and Domain Ownership Token, please refer to this page.

Main Use Cases

Fractionalize Domain NFTs

To obtain fractional tokens from a Domain Ownership Token (NFT), the user must fractionalize the NFT by interacting with the Doma Fractionalization smart contract. Upon fractionalization, the smart contract mints the corresponding fractional tokens and transfers them to a Doma-approved launchpad in a single transaction. The launchpad is responsible for raising funds and launching the fractional token on supported DEXs.

When minting the fractional tokens, the user specifies the total supply and other token metadata.

After a domain NFT is fractionalized, anyone can buy out the NFT by paying the required buy out price. Once the NFT is reassigned to a new owner, it follows the standard Doma Protocol domain ownership rules.

To protect against price volatility, the original domain NFT owner sets a minimum buy out price in USDC. A buyer must pay a price that is greater than or equal to the minimum buy out price. The exact formula for determining the buy out price is covered in the next section.

Buy Out Domain NFTs

Doma Fractionalization allows domain NFTs to remain tradable even after they have been fractionalized. This means that any user can buy out a fractionalized domain NFT by interacting with the Doma Fractionalization smart contract. Since a fractionalized domain NFT may have increased market value due to demand for its fractional tokens, the buyout price is defined as follows:

$$Price_{buyout} = Max(MBP, FDV, FDV{twap})$$

where MBP is short for the minimum buyout price set by the user when fractionalizing the domain NFT. FDV is short for the fully diluted value, which is calculated by:

$$FDV = TotalSupply * Price$$

FDVtwap is short for the Time-Weighted Average Price (TWAP) FDV, which is similar to FDV, but uses TWAP price, instead of the current pool price. This is used to protect against short-term price volatility.

$$FDV = TotalSupply * Price_{twap}$$

Please note that the user performing the buy out may be different from the original NFT owner. In such cases, the Doma Protocol will initiate a process to update domain ownership records accordingly.

Once the domain NFT is bought out, the associated fractional tokens no longer represent ownership of the domain. However, holders of these tokens can still trade these tokens on exchanges, or redeem them for a portion of the buy out proceeds by interacting with the Doma Fractionalization smart contract (as explained in the next section).

Exchange Fractional Tokens After Buying Out

When a domain NFT is bought out, the original fractional tokens no longer represent ownership of the domain. To protect the value of these tokens, the Doma Protocol allows holders to redeem them for USDC.e based on the buy out price of the domain:

$$Price_{token} = \frac {Price_{buyout}} {TotalSupply_{token}}$$

After the buy out, the new domain owner may choose to re-fractionalize the domain by issuing a new set of fractional tokens through a separate ERC-20 contract. These new tokens are distinct and do not affect the value or redeemability of the original tokens.