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Galaxy Digital Researcher: Peer-to-peer, Peer-to-pool and CDP types in NFT Lending

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NFT mortgages are still in their infancy, and they may thrive in a bear market.

Galaxy Digital Researcher: A Look at Peer-to-Peer, Peer-to-Pool, and CDP Types in NFT Lending

原文作者： Kirill Naumov， Galaxy Digital 研究员

The Way of DeFi

NFT lending platforms allow users to borrow liquid assets by pledging their NFTS. In this post, we'll take an in-depth look at peer-to-peer, peer-to-pool, and CDP lending in NFTS to understand this growing trend.

One of the challenges of investing in NFTS over the long term is money management. Holding NFTS means locking up large amounts of money in an illiquid investment whose price can fall in a matter of days.

Over-collateralized NFT lending agreements such as Compound, Aave, and Maker in traditional DeFi allow users to release a portion of liquidity in their NFT portfolios without losing exposure to NFTS. Here's a look at how different projects are doing this.

Peer-to-peer lending

In peer-to-peer lending, borrowers are paired directly with lenders. This is currently the main method of NFT borrowing. Peer-to-peer lending platforms include &NBSP; NFTfi, TrustNFT, Pawnfi and &NBSP; Yawww ‌.

These platforms typically require users to lock up an NFT as collateral in an escrow contract and then provide a loan for a specified period of time. The user then receives bids from others for the collateral and interest rate parameters.

This bidding typically generates various combinations of loan-to-value ratios and interest rates, allowing NFT owners to choose what works best for them. This is why peer-to-peer lending is a perfect hedge against NFT risk.

The loan is equivalent to a put option (if the NFT price falls below the borrowed amount, then the user is better off defaulting), and by owning the NFT (in the contract) and owning the put option, the user creates a call option payoff situation and avoids losses above the stated price.

In addition, sophisticated traders leverage in peer-to-peer lending. For example, a user can borrow $50,000 by locking in one BAYC NFTS and purchasing two MAYC NFTS. If their price goes up, they only have to pay back $50,000 plus interest, making a profit.

Peer-to-peer loans usually have high interest rates and moderate loan-to-value ratios. Of the platforms we analyzed, NFTfi has the most traction, with $28.6 million of current debt outstanding. Last month, its APR reached 63%.

Point to pool platform

The Drops DAO operates a compound-like money market that allows users to pledge NFTS to lend USDC and ETH. NFTS are priced by a Chainlink predictor, adjusted for outliers, and averaged over a period.

From the user's point of view, they deposit NFTS as collateral and borrow funds from the pool at variable interest rates. These funds are provided by lenders, who earn interest from borrowers.

Like Compound and Aave, Drops uses the sharded interest function, which targets a specific utilization rate and starts to significantly increase the interest rate paid by borrowers if there isn't enough money for withdrawals.

For a more in-depth explanation of how point-to-pool money markets work, check out this post.

To limit the risk to liquidity providers, Drops separates the agreements into isolated pools, each with its own collection of NFTS. This is similar to the way Fuse operates on Rari Capital, which ensures that lenders select collections they are happy with.

Drops currently has $2.6 million in supply capital and $388,000 in outstanding loans. They offer modest LTV ratios to ensure solvency and offer relatively low interest rates (around 10% per annum for Yuga Labs' vaults).

Other point-to-pool NFT mortgage agreements include & NBSP; BendDAO ‌ and & have spent Bailout iterates on this design. BendDAO offers 48-hour liquidation protection for borrowers, while Bailout limits the loan term to 30 days to ensure solvency.

In general, point-to-pool NFT mortgage agreements, like the point-to-pool money market in DeFi, accept only blue-chip assets as collateral. For these agreements to work, a predictive infrastructure and stable floor prices are needed.

Collateralized Debt Position (CDP)

Pioneered by MakerDAO, CDP is the ultimate model for the NFT collateralized money market.

JPEG& #x27; d It is a lending protocol that uses CDP to realize lending to NFTS.

After users deposit their NFTS in vaults as collateral, they can mint PUSd, a stablecoin pegged to the U.S. dollar. JPEG'D, which allows PUSd debt positions up to 32% of the value of the collateral, is priced by Chainlink. The agreement carries only 2% annual interest.

On JPEG'd, when a user's debt/collateral ratio exceeds 33% (or the 40% Cigarette NFT card with collateral), the clearing is performed entirely by the DAO. The DAO builds up its coffers by paying debts and retaining or auctioning NFTS.

Users can buy insurance against liquidation at the time of the loan and pay a lump sum of 5% of the loan amount, which is not refundable. With insurance, users can choose to pay the debt themselves (with a penalty) within 72 hours of liquidation.

JPEG'd raised $72 million through a "giving campaign" in February 2022. It looks like an ICO, it sounds like an ICO, but it's not an ICO.

CDP lending through JPEG'D is perfect for those seeking to get some liquidity out of their blue-chip NFTS without paying high interest rates.

conclusion

NFT mortgages are still in their nascent stages, and it seems to me that they will develop a lot in a bear market.

However, caution must be exercised when attempting these protocols, as they are very dependent on the performance of the predictor and the stability of the market.

To learn more about these and other similar projects, read &NBSP; The lending markets section of the NFTs and DeFi report, which Sal Qadir and I published for Christie's Art and Technology Summit.