Original text: "NFT Lending Agreement Mechanism Comparison: Fall ≠ Inevitable Liquidation"
Author: Loopy Lu
With the fermentation of the Azuki incident, the NFT community and industry are facing tests. Not only have the major blue-chip NFT series experienced declines of varying magnitudes, but many NFT lending platforms have also come under pressure.
The market even further suspects that with the further decline of NFT prices, will it trigger a series of loan liquidations, causing NFT prices to enter a new round of spiral stampede?
How prosperous is NFT Lending?
With the development of NFT, new projects in the entire NFTFi market emerge in an endless stream, and various protocols continue to emerge.
How many NFT lending platforms are there at present? As a relatively "just-needed" product in the NFT field, there are countless lending agreements. Alchemy alone has included 42 NFT loan products. Since most of them are not popular, the data is difficult to obtain. This article does not use this list as a research object.
**Data from DeFiLlama shows that currently 23 NFT lending agreements have been included and included in statistics. As of the publication of this article, the total TVL of 23 agreements has reached 189 million US dollars. **
Judging from the data alone, this figure is quite impressive. If FT is used for a less equal comparison, the total TVL of 264 FT (homogeneous token) lending agreements is as high as 14.7 billion US dollars, which is 77.7 times the TVL of NFT lending. The total market value of FT is about 1.2 trillion US dollars, which is 200 times that of NFT's total market value of 6 billion US dollars.
Although there are a large number of agreements, judging from the data, there are only a few agreements recognized by the market.
Among NFT lending products, the TVL of 5 protocols has reached more than 10 million US dollars, and the TVL of 4 protocols is between one million and ten million. The head agreement has obvious advantages, ParaSpace and BendDAO BendDAO Bend is an NFT liquidity and lending agreement with a reactive interest rate for NFT financialization. Bend is bringing NFT pool lending to a rapidly growing market, providing a gateway to DeFi for Web3 users. View more The combined TVL of the two platforms is about $91 million, accounting for about 48% of the total TVL of all NFT lending agreements.
Flexible, "traditional" P2P lending, injecting liquidity into long-tail assets
In May of this year, Blur, a well-known NFT trading platform, introduced the NFT lending agreement called Blend, and thus entered a new track in the NFT market. Similar to Blur, NFTfi and Arcade are both NFT lending protocols that adopt the P2P model.
Taking NFTfi as an example, this agreement is a peer-to-peer (P2P) NFT lending agreement, which is also the current mainstream form of NFT lending.
NFTfi lending page
In this type of model, borrowers and lenders can perform 1-to-1 matching on the platform, and one lender will directly lend money to one borrower.
The P2P model is closer to mortgage loans in the traditional world, and the platform only acts as an intermediary.
In the P2P mode, all quotations and transactions are completed on the platform, while the collateral is kept by the platform. If the borrower defaults, the platform will auction off its collateral. Since this model is closer to "one-single bargaining", the smooth transaction of this type of agreement depends on a large number of users, which is closer to "semi-manual". But the advantage is that its loan transactions are more diversified and more inclusive of long-tail assets.
But specifically, the same is P2P lending, and each company is different.
Specifically, NFTfi is closer to traditional lending. The lender can set the loan amount, loan term, interest, etc. by himself. If the loan defaults, its NFT assets will be pledged to the lender, and the lender will have the opportunity to obtain the NFT at a price lower than its market value.
Arcade is also an established lending program. The project was formerly known as Pawn.fi. Similar to NFTfi, the lender needs to initiate a loan request, set the details of the loan category, loan amount, repayment period, and loan interest rate, and sign a binding transaction based on this. In addition, Arcade also allows users to package multiple NFTs into one NFT package and mortgage the package as a single asset. There is also greater flexibility in lending agreements. At the end of June this year, a user is about to Found FTX FTX FTX.com is a cryptocurrency exchange built by traders, for traders. Due to the run on liquidity crisis, FTX filed for bankruptcy in November 2022. View more creditor's rights Tokens are packaged as NFT, and with this NFT as collateral, their creditor's rights worth $31,307.81 are loaned to the agreement for $7,500.
List of Blur Lending loans
Blend is a special one among P2P lending. The agreement does not need to set an expiration date to achieve the effect of "perpetual loan". As long as there is a lender willing to use the pledge loan, Blend will automatically restart a loan position. On-chain transactions are only required if interest rates change or when one of the parties wants to exit a position.
For default and liquidation, Blend also has different designs. When the auction is triggered, the borrower has 24 hours to repay the loan. If the loan is not repaid, the interest rate of its loan agreement will be further increased, making its loan auction more attractive, and eventually its loan APY can even reach 1000%. If no one buys out the loan, the lender will receive the NFT as collateral 30 hours after the auction is triggered.
On the whole, most P2P lending products do not require the intervention of external oracle machines, which is also the flexibility of "peer-to-peer". The interest rate and loan value are negotiated and determined by both borrowers and lenders, and each loan is individually matched.
How does the agreement loan of the liquidity overlord plant hidden dangers for the market?
Point-to-protocol transactions are a completely different lending model from P2P. Both ParaSpace and BendDAO have adopted this model. DeFiLlama data shows.
Its high TVL also explains to a certain extent the high efficiency of peer-to-peer agreement lending. P2P NFT lending allows for more flexible and customized loans, while the peer-to-peer agreement allows NFT holders to obtain liquidity more quickly and conveniently.
In this model, users can directly obtain loans from the agreement after mortgaging NFT, without waiting for suitable borrowers to complete the "1-to-1" matching. Similar to the FT lending agreement, the funds for lending usually come from liquidity providers. By providing funds to the agreement, users can earn loan interest.
ParaSpace Lending Marketplace
Taking ParaSpace as an example, the agreement provides users with a more intuitive market and user experience close to traditional FT lending. Users can deposit NFTs and borrow multiple FT tokens directly from the protocol.
BendDAO lending market
Similar to ParaSpace, BendDAO also allows users to directly initiate loans to the agreement, and the agreement issues loans to borrowers through a unified reserve pool.
In this model, the biggest difference from peer-to-peer NFT loans lies in the importance of external oracles. Since this type of loan is not a loan term agreed upon by both parties, the liquidation mechanism for debt default is different from that of the aforementioned P2P platform.
In addition, the most important thing is that after the liquidation occurs, NFT will flow to the secondary market after being auctioned, instead of being transferred to lenders. It is this difference that makes this type of model more "automated", but it also buryes the hidden danger of NFT's "downward spiral".
Whether it is BendDAO or ParaSpace, the price feed uses the Chainlink oracle, and the floor price of OpenSea is used as the price feed data.
JPEG'd is a wonderful flower among mainstream NFT lending projects. The protocol does not use the conventional model of depositing NFT and lending ETH. Instead, it is modeled on MakerDAO, allowing users to deposit NFT as collateral and borrow the synthetic stable currency PUSd. Users can use PUSd to provide liquidity on the protocol and earn interest. This model is called NFDP (Non-fungible debt positions, non-homogeneous debt positions). Similar to other peer-to-peer lending platforms, JPEG'd uses Chainlink oracles for price feeds.
Liquidation triggers spiral stampede?
Liquidation occurs when the health of the collateral becomes insufficient.
After the Azuki incident fermented, the rapid drop in the price of Azuki caused the floor price of some NFTs to fall below the debt value. Taking BendDAO as an example, currently a total of 8 Azukis have bad debts, and the mortgage assets worth 59.67 ETH owe a debt of 72.47 ETH.
A similar situation has emerged with ParaSpace. Many loans on the platform have become insolvent.
At present, 13 (14 in total) Azuki loan settlements have been suspended by the platform, and the total value of these collaterals is 359,900. ParaSpace stated that the suspension of liquidation is designed to give users more time to replenish liquidity, repay loans and improve health, and will resume liquidation later. At present, this batch of bad debts is about 100,000 US dollars. ParaSpace said that it has enough reserve funds to deal with unexpected situations, and its reserve funds can fully cover them.
How terrifying can the downward spiral caused by liquidation be?
In April of this year, BAYC giant whale franklin's account was withdrawn from the circle, which made people sigh. Franklin Franklin FLy Token is the native token of FLyECO. FLyECO includes FLy Launchpad for IDO projects, FLy Trading Signals for manual and API trading, FLyDEX for traders and solutions for FLy token holders such as FLy Staking, FLy Farming. See more Using BendDAO repeatedly, deploying a large amount of BAYC with leverage and market declines. He once owned 61 BAYCs and became the sixth largest BAYC owner. And his borrowing amount has reached a staggering nearly 20,000 ETH. But under a series of wrong operations, franklin finally made a lot of losses, and thus retired from the circle.
At present, the vigorous development of the NFT lending market has brought richer liquidity and richer imagination and usage scenarios to the market. However, with the intensification of NFT financialization, various financial risks contained in the FT market will also breed in the NFT market. With the emergence of this round of large market fluctuations, how many risks will there be in the NFT market in the future?
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Comparison of NFT lending agreement mechanisms: Will falling prices lead to serial liquidation of loans?
Original text: "NFT Lending Agreement Mechanism Comparison: Fall ≠ Inevitable Liquidation"
Author: Loopy Lu
With the fermentation of the Azuki incident, the NFT community and industry are facing tests. Not only have the major blue-chip NFT series experienced declines of varying magnitudes, but many NFT lending platforms have also come under pressure.
The market even further suspects that with the further decline of NFT prices, will it trigger a series of loan liquidations, causing NFT prices to enter a new round of spiral stampede?
How prosperous is NFT Lending?
With the development of NFT, new projects in the entire NFTFi market emerge in an endless stream, and various protocols continue to emerge.
How many NFT lending platforms are there at present? As a relatively "just-needed" product in the NFT field, there are countless lending agreements. Alchemy alone has included 42 NFT loan products. Since most of them are not popular, the data is difficult to obtain. This article does not use this list as a research object.
**Data from DeFiLlama shows that currently 23 NFT lending agreements have been included and included in statistics. As of the publication of this article, the total TVL of 23 agreements has reached 189 million US dollars. **
Judging from the data alone, this figure is quite impressive. If FT is used for a less equal comparison, the total TVL of 264 FT (homogeneous token) lending agreements is as high as 14.7 billion US dollars, which is 77.7 times the TVL of NFT lending. The total market value of FT is about 1.2 trillion US dollars, which is 200 times that of NFT's total market value of 6 billion US dollars.
Although there are a large number of agreements, judging from the data, there are only a few agreements recognized by the market.
Among NFT lending products, the TVL of 5 protocols has reached more than 10 million US dollars, and the TVL of 4 protocols is between one million and ten million. The head agreement has obvious advantages, ParaSpace and BendDAO BendDAO Bend is an NFT liquidity and lending agreement with a reactive interest rate for NFT financialization. Bend is bringing NFT pool lending to a rapidly growing market, providing a gateway to DeFi for Web3 users. View more The combined TVL of the two platforms is about $91 million, accounting for about 48% of the total TVL of all NFT lending agreements.
Flexible, "traditional" P2P lending, injecting liquidity into long-tail assets
In May of this year, Blur, a well-known NFT trading platform, introduced the NFT lending agreement called Blend, and thus entered a new track in the NFT market. Similar to Blur, NFTfi and Arcade are both NFT lending protocols that adopt the P2P model.
Taking NFTfi as an example, this agreement is a peer-to-peer (P2P) NFT lending agreement, which is also the current mainstream form of NFT lending.
NFTfi lending page
In this type of model, borrowers and lenders can perform 1-to-1 matching on the platform, and one lender will directly lend money to one borrower.
The P2P model is closer to mortgage loans in the traditional world, and the platform only acts as an intermediary.
In the P2P mode, all quotations and transactions are completed on the platform, while the collateral is kept by the platform. If the borrower defaults, the platform will auction off its collateral. Since this model is closer to "one-single bargaining", the smooth transaction of this type of agreement depends on a large number of users, which is closer to "semi-manual". But the advantage is that its loan transactions are more diversified and more inclusive of long-tail assets.
But specifically, the same is P2P lending, and each company is different.
Specifically, NFTfi is closer to traditional lending. The lender can set the loan amount, loan term, interest, etc. by himself. If the loan defaults, its NFT assets will be pledged to the lender, and the lender will have the opportunity to obtain the NFT at a price lower than its market value.
Arcade is also an established lending program. The project was formerly known as Pawn.fi. Similar to NFTfi, the lender needs to initiate a loan request, set the details of the loan category, loan amount, repayment period, and loan interest rate, and sign a binding transaction based on this. In addition, Arcade also allows users to package multiple NFTs into one NFT package and mortgage the package as a single asset. There is also greater flexibility in lending agreements. At the end of June this year, a user is about to Found FTX FTX FTX.com is a cryptocurrency exchange built by traders, for traders. Due to the run on liquidity crisis, FTX filed for bankruptcy in November 2022. View more creditor's rights Tokens are packaged as NFT, and with this NFT as collateral, their creditor's rights worth $31,307.81 are loaned to the agreement for $7,500.
List of Blur Lending loans
Blend is a special one among P2P lending. The agreement does not need to set an expiration date to achieve the effect of "perpetual loan". As long as there is a lender willing to use the pledge loan, Blend will automatically restart a loan position. On-chain transactions are only required if interest rates change or when one of the parties wants to exit a position.
For default and liquidation, Blend also has different designs. When the auction is triggered, the borrower has 24 hours to repay the loan. If the loan is not repaid, the interest rate of its loan agreement will be further increased, making its loan auction more attractive, and eventually its loan APY can even reach 1000%. If no one buys out the loan, the lender will receive the NFT as collateral 30 hours after the auction is triggered.
On the whole, most P2P lending products do not require the intervention of external oracle machines, which is also the flexibility of "peer-to-peer". The interest rate and loan value are negotiated and determined by both borrowers and lenders, and each loan is individually matched.
How does the agreement loan of the liquidity overlord plant hidden dangers for the market?
Point-to-protocol transactions are a completely different lending model from P2P. Both ParaSpace and BendDAO have adopted this model. DeFiLlama data shows.
Its high TVL also explains to a certain extent the high efficiency of peer-to-peer agreement lending. P2P NFT lending allows for more flexible and customized loans, while the peer-to-peer agreement allows NFT holders to obtain liquidity more quickly and conveniently.
In this model, users can directly obtain loans from the agreement after mortgaging NFT, without waiting for suitable borrowers to complete the "1-to-1" matching. Similar to the FT lending agreement, the funds for lending usually come from liquidity providers. By providing funds to the agreement, users can earn loan interest.
ParaSpace Lending Marketplace
Taking ParaSpace as an example, the agreement provides users with a more intuitive market and user experience close to traditional FT lending. Users can deposit NFTs and borrow multiple FT tokens directly from the protocol.
BendDAO lending market
Similar to ParaSpace, BendDAO also allows users to directly initiate loans to the agreement, and the agreement issues loans to borrowers through a unified reserve pool.
In this model, the biggest difference from peer-to-peer NFT loans lies in the importance of external oracles. Since this type of loan is not a loan term agreed upon by both parties, the liquidation mechanism for debt default is different from that of the aforementioned P2P platform.
In addition, the most important thing is that after the liquidation occurs, NFT will flow to the secondary market after being auctioned, instead of being transferred to lenders. It is this difference that makes this type of model more "automated", but it also buryes the hidden danger of NFT's "downward spiral".
Whether it is BendDAO or ParaSpace, the price feed uses the Chainlink oracle, and the floor price of OpenSea is used as the price feed data.
JPEG'd is a wonderful flower among mainstream NFT lending projects. The protocol does not use the conventional model of depositing NFT and lending ETH. Instead, it is modeled on MakerDAO, allowing users to deposit NFT as collateral and borrow the synthetic stable currency PUSd. Users can use PUSd to provide liquidity on the protocol and earn interest. This model is called NFDP (Non-fungible debt positions, non-homogeneous debt positions). Similar to other peer-to-peer lending platforms, JPEG'd uses Chainlink oracles for price feeds.
Liquidation triggers spiral stampede?
Liquidation occurs when the health of the collateral becomes insufficient.
After the Azuki incident fermented, the rapid drop in the price of Azuki caused the floor price of some NFTs to fall below the debt value. Taking BendDAO as an example, currently a total of 8 Azukis have bad debts, and the mortgage assets worth 59.67 ETH owe a debt of 72.47 ETH.
A similar situation has emerged with ParaSpace. Many loans on the platform have become insolvent.
At present, 13 (14 in total) Azuki loan settlements have been suspended by the platform, and the total value of these collaterals is 359,900. ParaSpace stated that the suspension of liquidation is designed to give users more time to replenish liquidity, repay loans and improve health, and will resume liquidation later. At present, this batch of bad debts is about 100,000 US dollars. ParaSpace said that it has enough reserve funds to deal with unexpected situations, and its reserve funds can fully cover them.
How terrifying can the downward spiral caused by liquidation be?
In April of this year, BAYC giant whale franklin's account was withdrawn from the circle, which made people sigh. Franklin Franklin FLy Token is the native token of FLyECO. FLyECO includes FLy Launchpad for IDO projects, FLy Trading Signals for manual and API trading, FLyDEX for traders and solutions for FLy token holders such as FLy Staking, FLy Farming. See more Using BendDAO repeatedly, deploying a large amount of BAYC with leverage and market declines. He once owned 61 BAYCs and became the sixth largest BAYC owner. And his borrowing amount has reached a staggering nearly 20,000 ETH. But under a series of wrong operations, franklin finally made a lot of losses, and thus retired from the circle.
At present, the vigorous development of the NFT lending market has brought richer liquidity and richer imagination and usage scenarios to the market. However, with the intensification of NFT financialization, various financial risks contained in the FT market will also breed in the NFT market. With the emergence of this round of large market fluctuations, how many risks will there be in the NFT market in the future?