Simple thinking on NFT mortgage lending: in the short term, it is a niche track, mainly for the top NFT holder

Speaking of mortgage lending, for FT, the mortgage obviously needs to bear a certain liquidity cost: in the face of token rises, it cannot be sold and profited; in the face of token decline, it can only be held passively.

For institutions or core players who hold long-term head NFT projects (such as CryptoPunks and BAYC, etc.), they may not have the intention to sell, so when assets need to be realized, mortgage lending is an option worth considering. The price of head NFTs is also relatively stable.

Further, for speculative purposes, there may be frequent buying and selling of NFTs in the hands of retail investors, and the overall value of NFTs is not high, which is relatively unsuitable for mortgage.

Therefore, it is believed that NFT lending will be a niche market in the short term, mainly for head/blue-chip NFT holders.

Three types of projects Peer-to-peer mode

model

In DeFi lending, Aave's predecessor, Ethlend, uses a peer-to-peer model.

Similar to Arcade, its AssetWrapper contract supports packaging and mortgage ERC721, ERC1155, and ERC20 assets, and then generates wNFT. After the borrower sets the loan amount, repayment amount, currency and time, the wNFT is mortgaged, and then waits for the lender to match the order. Arcade will add an instalment model in a future release.

It should be noted that Arcade does not set up automatic liquidation, and in the event of a default, the borrower can still repay the loan until the lender claims the collateral.

For a peer-to-peer platform, whether the loan demand can be responded to in a timely manner is directly related to the user experience of the platform. Average wait times for matches are not yet available in Arcade's platform data. According to team members, BAYC and CryptoPunks floor price loan requests can basically be responded to instantly.

In addition, the difference between NFT and FT is that NFTs in the same series are different. It is difficult for lenders to evaluate NFTs with high rarity, or the two parties disagree on the valuation of collateral, which increases the uncertainty of lending. sex.

Arcade’s total platform loan volume now stands at $9.5 million, supporting 49 NFT Collections. In late December, Arcade raised a $15 million Series A round led by Pantera Capital.

Fund pool model

model

The second type is the fund pool model similar to Aave and Compound, such as Drops DAO.

In this model, the loan has no maturity date and the interest rate is calculated based on the utilization rate of the asset. The real-time price of NFT is quoted by the oracle machine.

The advantages and disadvantages of the peer-to-peer model and the fund pool model are compared in more detail by Dyo Hu in this article.

For NFTs with high rarity, the value in the capital pool is actually diluted, making the loan-to-value ratio of this part of NFTs uneconomical.

On the whole, the fund pool model is relatively complex, and there is the possibility of malicious manipulation of prices and serial liquidations. In the case of general liquidity in the NFT market, there is a high systemic risk. In the early stage of the development of decentralized NFT lending, the peer-to-peer model was relatively more stable and reliable.