[INVESTMENT] Venture - Sharky.fi

Hi everyone,

Thanks to a member of our community, we got intro’ed to Sharky.fi

Sharky is an instant lending protocol allowing NFT holders to borrow Solana against their NFTs. The permissionless model is convenient for borrowers and offers flexibility and yield for lenders.

PROBLEM
Sharky is looking to solve the critical issue of locked liquidity in NFTs. As of now, NFTs, for the most part, are held in wallets, and this creates large amounts of locked liquidity. As the NFT market grows in the following years, this problem will only worsen (potentially holding back adoption) unless we find some way to unlock the latent liquidity.

PRODUCT
Sharky uses an order book model to match borrowers to lenders providing fixed-term, fixed-interest loans. Their approach avoids a top-down valuation of the NFT to limit protocol risk (due to eg floor manipulation)

The v1 will be a simple model with a fixed interest rate for a given loan but dynamically determined for a collection. Prospective lenders bid an amount they are willing to lend against a specific NFT, which essentially represents the most they are willing to pay should the borrower default (taking into account liquidity risk, personal valuation, etc.). Borrowers will be able to accept a bid and take the loan out.

While the loan is active, both the borrower and the lender will be able to trade their position, thus creating the possibility of early liquidity and paving the way for loans of longer duration.

After the loan term ends, borrowers can repay the principal + interest to redeem their escrowed NFT. Otherwise, the loan defaults, and the lender redeems the NFT instead.

GO TO MARKET
Sharky is being developed with composability at its core to be integrated with existing protocols.

Potential integrations:

  • Platform UI Integrations: other platforms can expand the scope and keep users on-site while driving retail traffic to Sharky.
  • Protocol Integrations: deeper integration such as lending pools for loans, the listing of mortgaged NFT (with price > debt, automatically repaying it if sold)

Sharky is backed by top-notch NFT angels in the Solana space and already has a strong pipeline of upcoming partnership including Mango Markets and Holaplex

TEAM
Sharky is a team of 6 experienced builders that came together to solve illiquidity for NFTs. They worked in over ten startups with several successful exits. The team has experience managing communities, growing engineering teams, and making world-changing products.

  • Anton, Sharky’s Eng. Lead, Co-founder. He Co-founded two successful startups before. He has over 16 years of experience in building products and teams and worked as Principal Engineer and Head of Engineering in various early-stage startups. He built and managed teams of 1-30 engineers.
  • Rea, UI/UX/Design/Community, Co-founder. CalTech grad, serial founder, engineer, designer, San Francisco Slack Chapter leader. Anton and Rea have co-founded a startup before.
  • Agrippa, Blockchain Expert & Full Stack Engineer, Co-founder. Agrippa is a technical founder and network scientist who researched blockchain technology at Cornell’s IC3 Laboratory in 2017. Anton used to be his boss at Juni Learning.
  • Ellie, Smart Contracts & Solana Lead Engineer. Ellie is a mathematician and software engineer who builds Rust on the Solana blockchain.
  • George, Tokenomics and DeFi expert, Co-founder. An anchor dev, crypto native & Defi advisor. “The biggest crypto-degen on the team,” as he puts it.
  • Raj, Executive Assistant & Ops Lead. Raj has been into crypto since 2013, active in the Korean crypto scene in 2017-2018.

REVENUE MODEL
Two main sources of revenue for the protocol: 1) protocol liquidity provided (profit from interests), 2) a percentage fee on interest earned on 3rd party liquidity

WHY INVEST
The approach Sharky is taking to solve the issue of NFT liquidity is innovative, as it allows the creation of a sustainable market at scale. In our view, the hard side of the market is attracting NFT holders to take borrowings, and that’s where instant liquidity comes in as a killer feature. Furthermore, they tend to be the “smart money” in the game, those you can achieve enough returns to outpay the interest paid to lenders. On the soft side of the markets, lenders can use an attractive APY to park liquidity (an alternative to simple lending that yields a lower return). The team is well connected in the Solana ecosystem, as shown by the partnerships signed with tier-1 names in the space. This partnership will be a crucial advantage in the GTM strategy to outpace other possible competitors.

PROPOSED TICKET SIZE
$25-50k at $40m valuation. Tokens come with 1y vesting + 18months linear unlock
Sharky team would prefer to have a 50k ticket but is also willing to accept 25k, which currently represents around 0.5% of our portfolio

Tried to be as comprehensive as possible. More info available on request

2 Likes

My first take on this is positive. The team seems capable and the solution is novel and probably needed. I like that the protocol is just a marketplace and doesn’t take any direct credit exposure.

The valuation is on the high side though, I would like to see what progress and traction they already have.

What I don’t like is the pure Solana approach. Most big NFTs are on ETH and I think will remain there due to first-mover advantage and economies of scale for ecosystem building. What are some equivalent ETH projects? which business models compare? So far I have to say this is probably a better model then https://pawnshopgnomies.com

I’ll try to come back and write a more in depth post about my views, but would really appreciate being able to view a deck if possible.

1 Like

I agree with @PorcoRosso that the valuation seems to be very high for a project that has not delivered yet. I would like to have an investor deck about the project if it were possible so I can check how they have gotten to this valuation.

@PorcoRosso @Keabla I’ve shared with you the investors info. In terms of upcoming pipeline, I think the integration with Mango (so in the official mango UI there will be a NFT section for instant liquidity through Sharky), and Holaplex (leading no-code custom marketplace on Solana) are strong indicators. The fact that it’s currently focused on Solana only I don’t see it as a big problem as it makes sense to start on a single chain and then explore expanding to others later.

In terms of timing, they are looking to close the round by next week, so by then we should decide and vote on it (leaving a few days of buffer). I would look to finish the discussion by the weekend

I agree with @heremitas , I would suggest 50k ticket on this

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@heremitas thanks for bringing this opportunity to our community!

I like the market opportunity and the business model. They take no credit risk (limited downside – basically only development costs) but have disproportionate potential upside if/when (i) they become the go-to-platform for NFT-secured loans and (ii) all global assets will be tokenised. Exit through trade sale to a NFT marketplace should be there, maybe also in the short term. I have some doubts regarding (i) partnerships / team, (ii) competition, and (iii) valuation – more on these below.

In summary, I would invest an exploratory minimum ticket of $25k if these doubts are not solved, and $50k (or more) if we get full comfort.

Below my key considerations:

Business mode: @PorcoRosso I agree with your point, but I think once the project is up and running it should not be difficult to develop an ETH extension. I do not see this as an issue, at least in the short term. NFTs on ETH are moving to L2 because of high gas fees, therefore I think SOL is actually an advantage.

Partnerships: This is a key factor because is the key indicator of the developers’ credibility / connection in the Solana community. @heremitas can you please clarify whether partnerships with Mango Markets and Holaplex are signed or in pipeline? What visibility do we have on partnerships timeline and probability of success? Does somebody in our community know insiders at Mango Markets and Holaplex and can independently check the truth of this claim by the founders?

Competition: I found a few companies trying to do the same. Does anybody in our community know any of them / was able to review terms of their financing rounds? More in general, do we know how much is Sharky.fi aiming to raise (execution risk if not enough)?

Valuation: Before we can judge whether it is high / low, I think we should check (i) how the $40m was calculated / benchmarks, (ii) whether they company raised capital before and (iii) who else is investing. Does anybody in our community know?

2 Likes

Good Points @clarosam Agree with pretty much everything, however I am more agressive on the allocation. I think given the tight timeline we should go with 50k.

What does Arcade mean when they say “Pawn Protocol” is it just a contract on ETH or their own chain? If it is, I think that’s a big drawback and yet they raised a lot of money!
I saw pawnshop gnomies raise, and they are going for a lower valuation.

I am also veru curious how they justify the valuation are they just picking this out of thin air, hoping the market justifies it with a huge valuation, as do all the crypto projects?? In the VC world 40M on this little traction is a huge ask… In crypto I’m not so sure.
I fear that in this case we are complete price-takers and we ether just suck it up, or don’t participate. In this case I would just bite the bullet…

thanks @clarosam for your comments! With regard to partnerships, here is a tweet by Daffy (one of main Mango Markets developer). I believe the partnership with Holaplex is still in talking stage.

Overall Sharky is looking to raise $4m for 10% of tokens. In terms of valuations, it’s definitely on the high side but wouldn’t say crazy high, also given strong team and the fact they will be on the official Mango UI. This is their first raise and have a few notable angels among their backers

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Thanks guys, this is useful. Once they sign the partnerships, valuations will go up up. Based also on the tweet posted by @heremitas, I’m now in favor of investing $50k too.

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thanks everyone! proposal is now up for voting