This article will take stock of the current representative projects of the NFT lending track and their operation methods, and see which protocols can effectively release liquidity and share the big cake of the financial derivatives market?
The potential rate of return of NFT should not be underestimated, which also makes investors trade more for appreciation potential in addition to collection. However, the lack of liquidity of NFT assets also troubles investors, especially some non-popular projects are very time-consuming and labor-intensive to trade in the secondary market. Not only that, the expensive head NFT has a high investment threshold for most buyers, and they usually become bystanders without the opportunity to participate.
And NFT lending is becoming one of the solutions, which can further clarify the valuation of assets while providing liquidity and releasing more value from idle NFTs. In this article, PANews will take stock of the representative projects of the NFT lending track and their operation methods, and see which protocols can effectively release liquidity and share the big cake of the financial derivatives market?
NFTfi is a peer-to-peer NFT collateralized loan marketplace that allows NFT owners to obtain secured wETH and DAI loans from peer-to-peer liquidity providers in a fully trustless manner, thereby using the assets they own to obtain the liquidity they need.
Specifically, borrowers can put their NFT holdings as collateral, and lenders provide loans on demand. Once the offer is accepted, the borrower can receive the lender’s wETH or DAI, and the NFT asset will be locked into the NFTfi smart contract. If the borrower fails to pay off the loan before the loan matures, then their NFT assets will be pledged to the lender. The lender can provide loans for any NFT asset in NFTfi, including the ability to set the loan amount, loan term (7 days, 14 days, 30 days and 90 days), the total amount the borrower needs to repay when due, etc. If the borrower defaults and fails to repay the loan in time, the lender will have the opportunity to acquire the NFT at a price below its market value.
During the whole process, NFTfi will not charge the borrower any fees, the borrower only pays the fee (interest) to the lender; while NFTfi will charge the lender 5% of the interest earned by the successful loan as a service fee. In the event of loan default, no service fee will be charged.
The liquidity obtained through NFTfi can be used for a few examples:
- meet immediate liquidity needs (e.g. to cover margin positions);
- Take advantage of short-term investment opportunities (such as high-yield liquidity mining or NFT flipping);
- Take advantage of long-term investment opportunities (e.g. buying real estate; NFTfi V2 will support long-term lending);
- Postponing the planned sale of NFTs for more suitable marketing conditions;
- Postponing planned sales of NFTs to defer potential capital gains taxes;
- “Real life” needs can be met without selling valuable assets.
In terms of security, although the current version (V1) of NFTfi has not been formally reviewed, it has been reviewed by multiple developers and has been running for more than 18 months without any failures. V2 will be launched in the near future and has been officially double audited by an accredited auditing firm.
Collaterals backed by NFTfi include Wrapped Cryptopunks, Bored Ape Yacht Club, Art Blocks 2, Sandbox’s LANDs, and Moonbirds, among others. As of April 26, the total amount of NFTfi loans exceeded 37,000 wETH and 40 million DAI.
BendDAO is a decentralized non-custodial NFT-backed lending protocol in which users can participate as depositors or borrowers. BendDAO provides depositors to provide ETH liquidity to the loan pool to earn interest, and borrowers can use NFT as collateral to borrow ETH through the loan pool. BendDAO will take 30% of the mortgage loan interest as a management fee and distribute 100% to veBEND holders. BendDAO uses OpenSea’s NFT floor price as the price data of NFT collateral, and only supports the floor price of blue-chip NFT assets for on-chain price feeds.
Specifically, BendDAO has the following characteristics:
- Borrow and repay ETH at any time: Instant NFT collateralization brings instant liquidity to blue-chip NFT holders who can borrow and repay ETH at any time. A trustless liquidity solution for NFT holders. Users can borrow Ethereum by depositing NFT as collateral, and the deposited NFT will be put into the NFT pool and converted into boundNFT.
- 48-hour liquidation protection: In order to avoid losses caused by market fluctuations, borrowers will have a 48-hour liquidation protection period to repay the loan. If repaid within the 48-hour liquidation protection period, the NFT-backed loan will never be liquidated. Of course, for safety and fairness, even after the NFT floor price returns to the normal price, the borrower must repay part of the loan debt and pay the liquidator a penalty (1% of the list price at the time of default). Under the Bend Auction mechanism, any bidder can get the ownership of the NFT as long as the bid is higher than the floor price. Bend Auction depends on the “health” of loans in the system, related to debt, floor price and liquidation thresholds. Once the “health” is less than 1, anyone can participate in the auction (after the 48-hour liquidation protection period), and bidders can bid as long as the bid is higher than the previous price.
- True Ownership: When borrowers deposit NFTs in BendDAO, the NFTs will be minted into BoundNFTs. BoundNFT has the exact same metadata and token ID as the original NFT owned by the user, so it can be used for social media PFP.At the same time, in order to protect NFT owners from hacker attacks, BoundNFT is non-transferable and non-approvable, but supports Flash claim, that is, any potential airdrops can be claimed in the state of mortgage and loan, and token rewards can be obtained at the same time.
- Fair launch: 10% of BendDAO tokens are used for IF0, which is 1 billion $BEND. At present, BendDAO has successfully raised 3,000 ETH through IF0, of which 66% will be used to support the ETH liquidity pool, and 34% will be used for the daily maintenance and operation of the protocol. It is worth mentioning that some large investors bought tokens worth 2290 ETH at IF0. At the same time, BendDAO will distribute 5% of the total amount of tokens to the entire NFT community by airdrop, including blue-chip NFT holders, active traders and participants on OpenSea and NFTfi, and those who have participated in Bend Rinkeby NFT lending testers.
Currently, BendDAO has supported 6 blue-chip NFT projects, including BAYC, CryptoPunks, MAYC, Azuki, Clone X and Doodles. As of April 28, BendDAO’s fund pool has deposited over 33,000 ETH, and the total locked value has exceeded 66,000 ETH. In addition, according to the roadmap announced by BendDAO, it will plan to launch peer-to-peer NFT lending services, NFT asset cross-chain and permissionless loan pools, etc.
NFTX is a platform on Ethereum that uses NFTs as collateral to create ERC-20 tokens for trading. Specifically, users deposit their NFTs into the NFTX vault and mint into vTokens, which represent claims on random assets in the vault. vTokens can also be used to redeem specific NFTs from the vault (5% fee). These benefits include: LPs and staking minting vTokens for yield rewards; better distribution and price discovery mechanisms for NFT projects; immediate sale of any NFT by minting it as ERC-20 and swapping it through Sushiswap; adding NFTs Liquidity for investors and speculators.
NFTX was launched by Alex Gausman, a well-known developer of Ethereum, and is fully governed by the NFTX DAO community. All community-raised assets are NFTX “treasury” assets, managed by the $NFTX token owner.
MetaLend is an NFT lending protocol that allows players to mortgage NFT assets for lending activities. Using an over-collateralized loan model, users can lend 30% of the assessed value of NFT assets in ETH. If the borrower’s collateral value falls or the interest rises above the maximum loan-to-value ratio, MetaLend will initiate asset liquidation, selling its collateral at a 10% liquidation discount to repay the loan. During the whole process, the lender gets 85% of the total interest of the borrower, and MetaLend collects the remaining 15%.
Currently MetaLend is still in the beta stage and is planned to be officially launched in the second quarter. In the early stage, MetaLend mainly borrowed NFT assets related to Axie Infinity, and plans to integrate with the second Polygon-based game in the next two to three months. In April this year, MetaLend announced a $5 million financing led by Pantera Capital, with participation from Collab+Currency, Ancient8, etc. This round of financing will be used for product development, team expansion and marketing activities.
Flowty is a peer-to-peer NFT lending marketplace where borrowers are able to obtain liquidity using Flow-based NFT assets as collateral, and lenders generate interest income through NFT-secured loans. After the borrower selects the NFT to be mortgaged, he can enter the loan amount, loan interest rate and term to apply, and the collateral will be transferred to Flowty’s smart contract. If the borrower successfully repays the loan before maturity, the collateral NFT will be automatically transferred to the borrower; if the borrower fails to repay the loan before maturity, the collateral will be automatically transferred to the lender.
Flowty, on the other hand, takes a fee from each loan and oversees the collateral assets until the end of the loan term.Currently, Flowty’s supported projects include NBA Top Shot and Ballerz, with plans to add more Flow-based projects in the future. In April of this year, Flowty completed a $4.5 million Series A round, co-led by Greenfield One and Lattice Capital, with participation from Dapper Labs, Stermion, TinyVC, Luno Expeditions and Red Beard Ventures. The funds will be used for platform development and enrichment of the development team.
Arcade is an NFT lending platform for institutional lenders and high net worth retail investors, formerly known as Pawn.fi, the infrastructure layer for NFT liquidity. Users can mortgage their NFT assets for borrowing, or lend their Tokens to earn interest.
Specifically, NFT holders can use Arcade to package one or more of their NFT assets as collateral into wNFT, and apply for a loan after setting the borrowed Token type, amount, interest, time and other information. Arcade will lock the wNFT into its escrow smart contract. If the borrower fails to repay on time, the wNFT will be transferred to the address of the user who holds the creditor’s rights certificate. Arcade will collect 2% of the principal paid on each loan originated by the borrower.
In December 2021, Arcade completed a $15 million Series A round led by Pantera Capital, with participation from Castle Island Ventures, Franklin Templeton Blockchain Fund, Golden Tree Asset Management, Eniac Ventures, Protofund and BlockFi CEO Zac Prince.
Drops is an NFT platform that provides cross-chain liquidity and lending. The loan business is based on the financial function of Compound. It can use NFT assets such as pictures and Metaverse items as collateral to obtain instant loans without intermediaries. When users need to select a lending pool of the same category, they can mortgage NFT to obtain dNFT. Drops will aggregate the data of Drops NFT Floor TWAP, NFTX Floor Price TWAP and Chainlink NFT oracle mobile phone into a weighted average base price, and the holder can borrow the amount The maximum amount is 60% of the value of the NFT asset, and the amount of interest paid will depend on the amount of funds in the fund pool and the supply of NFT. The assets in the fund pool are composed of collateral assets and borrowable tokens. At present, lenders can deposit mainstream encrypted assets into the corresponding fund pools to earn interest. The supported encrypted assets include USDC, ETH, WBTC, ENJ, Matic and DOP.
Digital asset financial service institutions Nexo and Three Arrows Capital have launched a centralized NFT lending platform. Users can borrow stablecoins, ETH and other encrypted assets after filling out the KYC application form, and can also authorize Nexo to use the issued encrypted credit to execute NFT on their behalf Buy. At present, Nexo only supports Bored Ape Yacht Club and CryptoPunks as collateral, and the NFT value required to be collateralized must exceed $500,000, the annualized lending rate is about 12% to 15%, and the loan-to-value ratio is between 10% and 20%. That is, a $500,000 NFT can get a loan of $50,000 to $100,000. After the user repays the loan, Nexo will immediately return the NFT. If the entire loan is not repaid, the NFT asset will be transferred to Nexo as the repayment.
Pawnfi is a decentralized lending marketplace that provides pawn, leasing, trading, and auctions for various non-standard assets, including NFTs, LP tokens, utility currencies, and alternative portfolios. Compared with other transaction protocols and lending protocols, Pawnfi separates asset ownership, use rights and income rights, that is, asset holders can obtain loan funds, lease income, mining rewards, etc. at the same time without losing asset ownership. At present, Pawnfi has officially launched the testnet.
In November 2021, Pawnfi announced the completion of a $3 million financing led by Digital Currency Group, with participation from Animoca Brands, Dapper Labs Polygon, DeFi Alliance, and Hashkey Capital.
JPEG’d belongs to the NFT lending platform of the fund pool category. It adopts MakerDAO’s CDP (collateralized stable currency) model in the lending mechanism. Protocol users pledge NFT to enter the protocol, and lend the stable currency PUSd generated by NFT mortgage. 32% of the reserve price of PUSd. JPEGd’s first NFT that allows staking is CryptoPunks, with an initial borrowing rate of 2% per annum and a one-time borrowing fee of 0.5%. JPEG’d sets the LTV (borrowed value/collateral floor price) at 32%, and liquidation is triggered when the LTV reaches 33%. Due to the high volatility of NFT floor prices, JPEG’d uses Chainlink as its data source, and the core is the time-weighted average price. It is worth mentioning that JPEG’d has designed a novel insurance mechanism, users can choose to pay 5% of the borrowing cost for their loan for insurance, and once it is liquidated, they can pay back the debt, accrued interest and 25%. The NFT will be repurchased after the liquidation penalty, but the debt must be repaid within 72 hours, otherwise the NFT will be owned by JPEG’d DAO.
After the stable operation of PUNK vaults, JPEG’d collateral will also access blue-chip NFTs such as BAYC, Azuki, Clone X, Mutant Ape Yacht Club, Moonbirds, etc.
Themis is an Ethereum-based mortgage loan protocol that is compatible with ERC-721/ERC1155 assets, allowing users to create anonymous loans between pools and NFT stakers, including Uniswap-V3 LP positions. At the same time, market makers can also obtain market-making benefits by forming a loan settlement relationship with the capital pool and borrowing encrypted assets for other purposes. In addition, after the borrower returns the principal and interest, Themis will charge 5% interest for the user’s return.
- Users can obtain interest-bearing SP-token by depositing assets into the fund pool;
- A 1:1 anchoring relationship is formed between SP-token and deposited assets;
- The agreed interest rate formed by the lending pool and the margin will be automatically adjusted according to the utilization rate of the pool;
- Users can create Vaults to generate long-term deposits and get proof of NFT deposits.
- Allow users to borrow assets by staking NFTs including UNI-V3 NFTs (staking ratio: 0.65-0.75);
- Uniswap’s V3 oracle is used for quotes, with TWAP (time-averaged pricing) available upon request.
- When the liquidation conditions are met, the collateral will be liquidated to ensure the safety of the origin of the loan.
- After the user returns the principal and interest, the agreement charges 5% interest for the user’s return.
- Uniswap-v3-TWAP is used for quotes.
- Liquidation occurs when principal balance plus interest/collateral value >= collateral factor (0.8).
- Liquidators will be rewarded with governance tokens immediately after settlement.
- Initiate a dutch auction on liquidated properties with a 5% reduction every 4 hours.
- Liquidators must bid at least 80% of the NFT collateral value.
- After the liquidation is completed, the principal and interest will be returned, and the remaining assets will be transferred to the Themis treasury.
- NFT Avatar represents the user’s VIP status;
- User addresses with constraints that allow NFT signatures can choose to borrow at higher mortgage rates;
- When the user exercises this permission, the contract verifies the NFT balance contained in the borrower’s address.
Pine Protocol is a decentralized NFT-backed lending protocol. Investment institutions include Sino Global Capita, Alameda Research, Amber, Spartan, etc. Pine Protocol supports Ethereum NFTs traded on OpenSea as collateral for payment of loans in ETH. In the Alpha version, the value of the collateral is calculated from the floor price of the Opensea API in the past 7 days. If the borrower fails to pay off the debt before the loan matures or exceeds the LTV, the asset will be liquidated. Currently, the lending function is only available to PineDAO and a few whitelisted institutions. In addition, in addition to Ethereum, Pine Protocol plans to support Solana, BSC, Polygon, Avalanche and Fantom in the future.
Vera is an NFT-based DeFi protocol and financing solution that allows users to rent, lend or mortgage NFT assets. Use Vera’s apps and games to allow its NFT users to make buy now, pay later, or overtime payments directly on the Vera-powered NFT marketplace. If the buyer or borrower fails to meet their payment obligations during NFT financing or lending, Vera will ensure that the NFT is returned to a valid custodian in a trustless manner. The leasing feature allows NFT collectors to earn income or royalties by lending their NFTs to others. If the rent is not paid or the lease contract is terminated, the NFT will be returned to its owner.
In August 2021, Vera completed a $3 million financing led by Animoca Brands. Other participating institutions include OKEx Block Dream Fund, Genesis Block Ventures, Krypital Group, Shima Capital, SL2 Capital and Mozaik Capital.
Floor DAO is a decentralized NFT market-making protocol. Its founding members are the developers and designers of NFTX, which provides deep, sticky liquidity for all NFT collections contained in the Floor DAO library. Floor DAO uses the bond and rebase mechanism pioneered by OlympusDAO to accumulate production NFT liquidity, which is then deployed in strategies such as NFTX vaults to generate yield.
Floor DAO is a light fork of the Olympus V2 contract, which means that Floor DAO can use the bonding mechanism of Olympus V2 to distribute discounted FLOOR tokens in exchange for the liquidity of PUNK and PUNK-ETH. At the same time, Floor DAO will also use the rebase mechanism of Olympus V2 to distribute protocol rewards according to the growth of the treasury, which can come from NFTX fees earned by the treasury. In February of this year, Floor DAO purchased $5.16 million worth of CryptoPunks series NFTs to increase the liquidity of the vault. Although the main test object of Floor DAO is blue-chip PUNK, it plans to introduce more blue-chip NFTs in the future.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/unlocking-nft-liquidity-and-comprehensively-interpreting-the-operation-of-the-nft-lending-track-and-its-representative-projects/
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