To enable on-chain liquid art trading, the All-Art Protocol introduces a novel approach called Capped Automated Market Maker (cAMM). All-Art Protocol’s cAMM uses the same x*y=k constant product formula as UniSwap. On one side of each cAMM are an NFT-PRO’s LORTs (License Ownership Right Tokens), while on the other side is the collateral in ART coins. The cap is placed on how many LORTs can exist in the pool.
For artists to be able to monetize their work, they hold a certain number of LORTs outside of a fully capped pool, representing ownership of their NFT-PRO. These LORTs are in their wallet, but cannot be monetized while the pool is capped and full. To recoup, they must wait until the first sale happens and the pool is depleted of some of the LORTs. This solves the biggest challenge of placing NFTs in pools and ensures that artists are compensated for their work.
When an art piece is minted on the All-Art Protocol, it is minted along with ART coins that correspond to the value of that art piece set by its creator, the artist. These ART coins are then placed in a cAMM with LORTs that represent the license rights of that art piece. Additional LORTs are placed in the artist's wallet, representing his initial ownership of the piece. Once a buyer draws LORTs from the pool and deposits the required value in ART coins, the artist is given the opportunity to swap his LORTs with the corresponding amount of ART coins.
The All-Art Protocol programmatically creates and owns cAMMs. It mints LORTs for each NFT-PRO and places them in the newly created pool (for each art piece) and in the artists’ wallets.
Out of every transaction, cAMMs charge a trading fee, set by the artist, that is distributed to all LORT holders proportionally. This mechanism incentivizes art collecting as every collector earns passive revenue, and it encourages artists to mint NFT-PROs as they, too, can earn passive revenue if they decide to strategically keep a portion of LORTs for themselves.