Comprehensively sort out NFT lending projects and operation methods

This article will take stock of the representative projects of the current NFT lending track and their operation methods, and see which agreements can effectively release liquidity and share the big cake of the financial derivatives market?

Original title: Unlocking NFT liquidity, comprehensively interpreting the operation mode and representative projects of the NFT lending track

Author: Nancy

The potential rate of return of NFT should not be underestimated, which also makes investors trade more for appreciation potential than for collection. However, the lack of liquidity of NFT assets also plagues investors, especially for some non-popular projects, it is time-consuming and labor-intensive to trade in the secondary market. Not only that, the expensive top NFT has a high investment threshold for most buyers, and they are usually reduced to bystanders without the opportunity to participate.

NFT lending is becoming one of the solutions. While providing liquidity and allowing idle NFTs to release more value, it can further clarify the valuation of assets. In this article, PANews will take stock of the representative projects of the NFT lending track and their operation methods, and see which agreements can effectively release liquidity and share the big cake of the financial derivatives market?

NFTfi

NFTfi is a peer-to-peer NFT mortgage loan market that allows NFT owners to obtain secured wETH and DAI loans from peer-to-peer liquidity providers in a completely trustless manner, thereby using the assets they own to obtain the liquidity they need.

Specifically, borrowers can list the NFT they hold as collateral, and lenders can provide loans on demand. Once the offer is accepted, the lender can receive the lender's wETH or DAI, and the NFT asset will be locked into NFTfi's smart contract. If the borrower fails to repay the loan before the loan is due, its 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 period (7 days, 14 days, 30 days and 90 days), the total amount that the borrower needs to return when it expires, etc. If the borrower defaults and fails to repay the loan in time, the lender will have the opportunity to obtain the NFT at a price below its market value.

Throughout the process, NFTfi will not charge the borrower any fees, and the borrower will only pay the lender a fee (interest); while NFTfi will charge 5% of the interest earned by the lender on successful loans as a service fee. In the event of loan default, no service fee will be charged.

• Liquidity obtained through NFTfi can be used for a few examples:

• Meeting immediate liquidity needs (e.g. covering 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 (such as buying real estate; NFTfi V2 will support long-term loans);

• Postponing the planned sale of NFTs for more suitable marketing conditions;

• Postpone planned NFT sales to defer potential capital gains taxes;

• Meet "real life" needs without selling valuable assets.

In terms of security, although the current version (V1) of NFTfi has not been formally audited, it has been audited by multiple developers and has been running for more than 18 months without any failures. And V2 will be launched in the near future, and has been officially double-audited by an accredited auditing company.

NFTfi-backed collateral includes Wrapped Cryptopunks, Bored Ape Yacht Club, Art Blocks 2, Sandbox's LANDs, and Moonbirds, among others. As of April 29, the total amount of NFTfi loans exceeded 39,000 wETH and 40 million DAI.

BendDAO

BendDAO is a decentralized non-custodial NFT-backed lending protocol where users can participate as depositors or borrowers. BendDAO provides depositors with 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 draw 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 feed.

Specifically, BendDAO has the following characteristics:

(1) Borrow and repay ETH at any time: Instant NFT mortgages can bring instant liquidity to blue-chip NFT holders, and NFT holders can borrow and repay ETH at any time. A trustless liquidity solution for NFT holders. Users deposit NFT as collateral to borrow Ethereum, and the deposited NFT will be put into the NFT pool and converted into boundNFT.

(2) 48-hour forced 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 the sake of safety and fairness, even after the NFT reserve price returns to the normal price, the borrower must repay part of the loan debt and pay the liquidator a penalty (1% of the price at the time of default). Under the Bend Auction mechanism, as long as the bid is higher than the floor price, any bidder can obtain the ownership of NFT. Bend Auction depends on the "health" of loans in the system, which is related to debt, floor price and liquidation threshold. 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.

(3) True ownership: When the borrower deposits NFT in BendDAO, the NFT will be minted into BoundNFT. 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 hackers, BoundNFT is non-transferable and non-approvable, but supports Flash claim, that is, any potential airdrop can be claimed in the mortgage loan state, and token rewards can be obtained at the same time.

(4) Fair start: 10% of BendDAO tokens are used for IF0, which is 1 billion $BEND. Currently, 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 a large investor purchased tokens worth 2,290 ETH at IF0. At the same time, BendDAO distributed 5% of the total amount of tokens to the entire NFT community in the form of airdrops, including blue-chip NFT holders, active traders and participants on OpenSea and NFTfi, and those who have participated in the Bend Rinkeby NFT lending test.

Currently, BendDAO has supported 6 blue-chip NFT projects, including BAYC, CryptoPunks, MAYC, Azuki, Clone X, and Doodles. As of April 29, more than 47,000 ETHs have been deposited in BendDAO's fund pool, and the total lock-up value has exceeded 84,000 ETHs. In addition, according to the roadmap announced by BendDAO, it will plan to launch peer-to-peer NFT lending business, NFT asset cross-chain and license-free loan pool, etc.

NFTX

NFTX is a platform on Ethereum that uses NFT as collateral to create ERC-20 tokens for transactions. Specifically, users deposit their NFT into the NFTX vault and mint it into a vToken, which represents the right to claim random assets in the vault. vTokens can also be used to redeem specific NFTs from the vault (with a 5% fee). These benefits include: LP and pledge to mint vToken to obtain income rewards; can provide better distribution and price discovery mechanism for NFT projects; sell any NFT instantly by minting it as ERC-20 and exchanging it through Sushiswap; increase NFT Liquidity for investors and speculators.

NFTX was launched by Alex Gausman, a well-known developer of Ethereum, and is completely governed by the NFTX DAO community. All community-raised assets are NFTX "funds" assets, managed by $NFTX token owners.

MetaLend

MetaLend is an NFT lending protocol that allows players to mortgage NFT assets for lending activities. It adopts the over-mortgage loan model, and users can lend ETH of 30% of the assessed value of NFT assets. If the borrower's collateral value falls or the interest rate rises above the maximum loan-to-value ratio, MetaLend will initiate asset liquidation, selling its collateral at a liquidation discount of 10% to repay the loan. Throughout the process, the lender receives 85% of the borrower's total interest, and MetaLend collects the remaining 15%.

Currently MetaLend is still in the testing phase 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 planned to integrate with the second Polygon-based game in the next two to three months. In April this year, MetaLend announced a US$5 million financing led by Pantera Capital, with participation from Collab+Currency and Ancient8. This round of financing will be used for product development, team expansion and marketing activities.

Flowty

Flowty is a peer-to-peer NFT lending market. Borrowers can use Flow-based NFT assets as collateral to obtain liquidity, and lenders generate interest income through NFT-guaranteed loans. After selecting the NFT to be mortgaged, the borrower 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 mortgage assets until the end of the loan term. Currently, Flowty has supported projects including NBA Top Shot and Ballerz, and plans to add more Flow-based projects in the future. In April this year, Flowty completed its first round of financing of US$4.5 million, 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 enriching the development team.

Arcade

Arcade is an NFT lending platform for institutional lenders and high-net-worth retail investors, formerly Pawn.fi, the infrastructure layer for NFT liquidity. Users can mortgage their NFT assets for borrowing, or lend their own Tokens to earn interest.

Specifically, NFT holders can use Arcade to package one or more of their NFT assets as collateral into a wNFT, and apply for a loan after setting the information such as Token type, amount, interest, and time to borrow. 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 holding the credit certificate. Arcade will collect 2% of the principal payment 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

Drops is an NFT platform that provides cross-chain liquidity and lending. The loan business is built based on the financial functions 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 mortgage NFT to obtain dNFT after choosing a loan pool of the same category, Drops will aggregate a weighted average reserve price based on the data of Drops NFT Floor TWAP, NFTX Floor Price TWAP and Chainlink NFT oracle mobile phones, and the holder can borrow Up to 60% of the value of NFT assets, 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. Currently, lenders can deposit mainstream encrypted assets into the corresponding fund pool to earn interest. Supported encrypted assets include USDC, ETH, WBTC, ENJ, Matic and DOP.

Nexo

Nexo, a digital asset financial service organization, and Three Arrows Capital have launched a centralized NFT lending platform. After filling out the KYC application form, users can borrow stablecoins, ETH and other encrypted assets, and can also authorize Nexo to use the issued encrypted credit to execute NFT on their behalf. Buy. Currently Nexo only supports Bored Ape Yacht Club and CryptoPunks as collateral, and the value of NFT required to be mortgaged 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, an NFT worth $500,000 can receive 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 by the due date, the NFT assets will be transferred to Nexo as a repayment.

Pawnfi

Pawnfi is a decentralized lending market that can provide pawns, leases, transactions, and auctions for various non-standard assets, including NFT, LP tokens, utility currencies, and alternative combinations. Compared with other trading agreements and lending agreements, Pawnfi separates asset ownership, use rights and income rights, that is, asset holders can simultaneously obtain loan funds, lease income, mining rewards, etc. without losing asset ownership. At present, Pawnfi has officially launched the test network.

In November 2021, Pawnfi announced the completion of a $3 million financing round led by Digital Currency Group, with participation from Animoca Brands, Dapper Labs Polygon, DeFi Alliance, and Hashkey Capital.

JPEG'd

JPEG'd belongs to the NFT lending platform of the fund pool. It adopts MakerDAO's CDP (mortgage loan stable currency) model in the lending mechanism. Protocol users pledge NFT to enter the agreement, and lend the stable currency PUSd generated by NFT mortgage. 32% of the base price of PUSd. The first NFT that allows JPEGd to be mortgaged is CryptoPunks. The initial borrowing annual interest rate is 2%, and the one-time borrowing fee is 0.5%. JPEG'd sets the LTV (borrowing value/collateral floor price) at 32%, and liquidation will be triggered when the LTV reaches 33%. Due to the large fluctuations in the price of NFT floors, 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 of their loans for insurance, once they are liquidated, they can repay the debt, accrued interest and 25% After repurchasing the NFT after the liquidation penalty, 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 be connected to blue-chip NFTs such as BAYC, Azuki, Clone X, Mutant Ape Yacht Club, and Moonbirds.

Themis

Themis is an Ethereum-based mortgage loan protocol compatible with ERC-721/ERC1155 assets, allowing users to create anonymous loans between fund pools and NFT mortgagers, including Uniswap-V3 LP positions. At the same time, market makers can also form a loan settlement relationship with the fund pool and borrow encrypted assets for other purposes, thereby obtaining market-making benefits. In addition, after the borrower returns the principal and interest, Themis will charge the user 5% interest on the return.

lending pool

• 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 deposit will be automatically adjusted according to the utilization rate of the pool;

• Users can create Vaults to generate long-term deposits and obtain NFT certificates of deposit.

borrow money

• Allow users to borrow assets by staking NFTs including UNI-V3 NFTs (mortgage rate: 0.65-0.75);

• Uniswap's V3 oracle is used for quoting and TWAP (Time Average Pricing) is available upon request.

• When the liquidation conditions are met, the collateral will be liquidated to ensure the safety of the loan source.

• After the user returns the principal and interest, the agreement charges 5% interest on the user's return.

to liquidate

• Uniswap-v3-TWAP is used for quotation.

• Liquidation occurs when principal balance plus interest/collateral value >= collateral factor (0.8).

• Liquidators will be rewarded with governance tokens immediately after liquidation settlement.

auction

• Initiate a Dutch auction on liquidated properties, reducing by 5% 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

• NFT Avatar represents the user's VIP status;

• User addresses with allowed NFT signature constraints can choose a higher mortgage rate for borrowing;

• When a user exercises this permission, the contract verifies the NFT balance contained in the borrower's address.

Pine Protocol

Pine Protocol is a decentralized NFT-backed lending protocol. Investment institutions include Sino Global Capita, Alameda Research, Amber, Spartan, etc. Pine Protocol supports Ethereum NFT traded on OpenSea as collateral for loan payments in ETH. In the Alpha version, the value of the collateral is calculated through the floor price of the Opensea API in the past 7 days. If the borrower fails to pay off the debt or exceed the LTV before the loan is due, 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 also plans to support Solana, BSC, Polygon, Avalanche, and Fantom in the future.

Vera

Vera is an NFT-based DeFi protocol and financing solution that allows users to rent, lend or mortgage NFT assets. Apps and games that use Vera allow its NFT users to make immediate purchases, pay later, or pay over time directly on the NFT marketplace powered by Vera technology. If a buyer or borrower fails to meet its payment obligations during NFT financing or lending, Vera will ensure that the NFT is returned to an active custodian in a trustless manner. And 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 US$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

Floor DAO is a decentralized NFT market-making protocol. The founding members are developers and designers of NFTX, which provide deep and 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 income.

Floor DAO is a light fork of the Olympus V2 contract, which means that Floor DAO can use Olympus V2's bonding mechanism to distribute discounted FLOOR tokens in exchange for PUNK and PUNK-ETH liquidity. 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. These rewards can come from the NFTX fees earned by the treasury. In February of this year, Floor DAO purchased $5.16 million worth of CryptoPunks series NFTs to increase vault liquidity. Although the main test object of Floor DAO is blue-chip PUNK, it plans to introduce more blue-chip NFTs in the future.