NFT Lending - HackMD

# NFT Lending ## Overview * NFT Lending protocols give NFT owners - the ability to borrow funds against their NFTs. * If the borrower fails to repay the loan and interest at the end of the loan period, the lender is entitled to the associated NFT. * NFTs with higher liquidity and demand can get higher loan-to-value ratios (LTVs) from lenders, while less liquid and less demanded NFTs receive lower LTVs. ** * "The value of new NFT projects is too uncertain or volatile for lenders because they might end up empty-handed when there’s not enough demand to sell their defaulted NFT" (Mulders, 2021). * As of 2022, several NFT lending protocols that offer NFT Lending ----------- *Projects - looking to borrow against their NFTs - should consider the timing of when they plan to borrow against their NFTs. Choosing to wait until the NFTs & protocol become more established and well-known, can result in the project receiving more money for lending their NFTs (higher LTV ratios)* ---------------------- ## NFT Lending Protocols currently on Market: *NFT Lending is a relatively new DeFi product. It should be taken into account, that new protocols will emerge in the coming years - with, perhaps, more attractive features and value propositions for lenders and borrowers of NFTs.* Arcade * Lenders compete on terms such as loan-to-value ratio or interest rate. Depending on the type of asset, the loan-to-value ratio may be higher or lower, and the interest rate may also vary * Borrowers can also bundle together multiple NFTs when they apply for collateral, which saves gas fees on the loan transaction. * Limited list of projects supported * https://www.arcade.xyz NFTFi * Lenders compete on terms such as loan-to-value ratio or interest rate. Depending on the type of asset, the loan-to-value ratio may be higher or lower, and the interest rate may also vary * Loan value based on valuation from NFTbank and other platforms * ERC-721 token for collateralization. * Default rates hover just below 20%, and vary depending on the NFT. * https://www.nftfi.com BendDAO * Depositors provide ETH liquidity to the lending pool to earn a passive income, while borrowers are able to borrow ETH through lending pool using NFTs as collateral instantly. * https://www.benddao.xyz/app/auction/loans-in-auction Stater * https://stater.co Nexo * Nexo is a centralized NFT loan platform that only accepts blue-chip NFT collections valued at over $500,000. * Borrowing rate = 12%-15% * https://nexo.io/nft-lending ------------------ ## Key Points/Insights/Considerations * When looking at protocols to collateralize NFTs, the NFT must identify which protocols support the NFT type (i.e. ERC, Solana NFT, etc.) * **Which protocol offers the most attractive Loan-to-Value ratio for the NFT?** * "Due to the illiquid nature of the NFT market, it is not always easy to value an NFT. In most cases, you will not be able to get more than the current floor value adjusted for risk. This is something you must account for before taking out a loan on your NFTs" (Heidorn, 2022). * **As the NFT Lending market evolves, more lending platforms will arise (that may offer more attractive features for a lender - i.e. LTV ratios, security, etc.)** * **Which protocols liquidate an NFT in the event of a price drop in the asset?** * Ex: JPEG’d (decentralized NFT-lending protocol) will liquidate an NFT if the loan-to-value ratio hits 33% or higher. * **Open question: Does/how does fractionalized-NFT ownership fit into the NFT Lending landscape?** ## References & Reading List ByBit Learn. (2022). "Explained: NFT Loans and How They Work" https://learn.bybit.com/nft/what-are-nft-loans/ Chittum, M. (2022)."In Largest-ever NFT-backed Loan, 101 CryptoPunks Put Up as Collateral" https://blockworks.co/in-largest-ever-nft-backed-loan-101-cryptopunks-put-up-as-collateral/ CoinYuppie. (2022). "NFT lending" https://coinyuppie.com/discussion-nft-lending-and-how-it-works/ Heidorn, C. (2022). "What Are NFT Loans and How Do They Work?" https://tokenizedhq.com/nft-loans/ Mulders, M. (2021). "NFT DeFi: NFT Lending, Renting, and Staking". https://hackernoon.com/nft-defi-nft-lending-renting-and-staking Phan, B. (2022). "What is NFTs Lending in DeFi?" https://holdingb.com/what-is-nft-lending-in-defi/