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 cAMMs use 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 AART tokens. The cap is placed on how many LORTs can exist in the pool.
For creators 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 once a true sale has been made.
When an NFT-PRO is minted on the All-Art Protocol, it is minted along with 150 LORTs. 100 of them are placed in a cAMM and 50 are placed in the creator's wallet. Once a buyer draws LORTs from the pool and deposits the required value in AART tokens, the artist is given an opportunity to swap his LORTs with the corresponding amount of AART tokens.
The All-Art Protocol programmatically creates and owns cAMMs. It mints LORTs for each NFT-PRO and places them in the newly created pool and in the creators’ wallets.