Unlocking NFT Finance: Exploring the Exciting Possibilities at the Crossroads of NFTs and DeFi
NFTfinance - Massive potential for the next bull market (actual 100x)
Introduction:
Welcome to the world of art meets finance! In this edition, we dive into the intriguing realm of NFTs (non-fungible tokens) and decentralized finance (DeFi), unraveling the potential of NFT Finance and specifically NFT borrowing and lending. Join us as we explore the intersection of these two exciting domains and discover the opportunities that lie within.
Overview of NFTfinance applications:
Nft borrowing and lending
Nft Perpetuals
NFT AMMS
NFT Options
NFT Aggregation
NFT Fractionalization
NFT Renting
NFT Appraisals
NFT Marketplaces
Understanding the Landscape:
To comprehend the future, we must first acknowledge the present. The total market capitalization of NFTs currently stands at $7.49 billion down from close to $ 30 billion,
while the broader crypto market hovers around $1.17 trillion. Meanwhile, the DeFi sector on Ethereum boasts a more significant market cap of $46 billion (Yet down from 70% from its all time high of around $170 billion)
These figures serve as a reminder of the immense potential that lies ahead for the NFT space, as I believe it will at least catch up to, or even surpass total Defi market cap. NFT finance on the other hand represents just a fraction of the vast NFT sector, currently accounting for approximately 5% or less of its overall scope. This statistic highlights the immense untapped potential that NFT finance holds. As the NFT market continues to grow rapidly, with billions of dollars flowing into the sector, the opportunities for NFT finance to expand and flourish are substantial. (a potential 100x opportunity)
A brief recap of why NFTs are meaningful (for those well-versed in the subject, feel free to skip):
Unique Ownership: NFTs provide digital assets with verifiable ownership and scarcity.
Digital Collectibles: NFTs revolutionize digital collecting, enabling ownership and trading of unique digital items.
Artist Empowerment: NFTs allow artists to monetize their digital creations directly and retain control over their work.
Transparency and Authenticity: NFTs utilize blockchain technology, offering transparency and proof of ownership.
Interoperability and Utility: NFTs can have utility beyond ownership, granting access to exclusive content or integrating with DeFi protocols.
Investment Opportunities: NFTs present speculative investment potential, with some collectors and investors finding success in trading and investing.
The Quest for Capital Efficiency:
Amidst the diverse offerings in the NFT world, from community-focused projects like Pudgy Penguins to utility-based access passes like Proof, and the awe-inspiring art pieces found on platforms like Art Blocks, one desire unites all NFT enthusiasts: capital efficiency. The illiquidity of NFTs has been a significant drawback for holders, and that's where NFT borrowing and lending steps in, providing a much-needed solution.
Exploring NFT Borrowing and Lending Mechanisms:
To comprehend the dynamics of NFT finance borrowing and lending (big thread on NFT options and perps in a later thread), we must understand the two primary mechanisms employed by NFT platforms: Peer-to-Peer (P2P) and Peer-to-Pool (P2PL).
In P2P loan agreements, borrowers utilize their NFTs as isolated collateral for fixed-term, unliquidatable loans. For example, User A could borrow 10 ETH against a floor Squiggle NFT from User B for a 30-day period at an annual percentage rate (APR) of 20%. This approach offers stability to borrowers, as there are no automatic liquidations before the loan expiration date. Additionally it enables easy risk isolation by categorizing different NFT classes, allowing borrowers to strategically manage their loans. However, active management resulting in high reoccuring gas costs remain a consideration. Furthermore Matching borrower ask with lender bid can be challenging, posing difficulties for borrowers in finding favorable loan terms and potentially impacting their borrowing experience.
P2PL loans, on the other hand, involve borrowers borrowing ETH from a pool of lenders. Both lenders and borrowers accept fluctuating APRs based on utilization rates and other parameters. These loans are typically endless until the loan is repaid or the NFT collateral becomes undercollateralized, potentially leading to liquidation. While P2PL loans offer greater liquidity, borrowers must be mindful of the health factor to avoid risks.
For instance, let's consider User A who obtains a loan using a Cryptopunk valued at 50 ETH as collateral. With a maximum loan-to-value (LTV) ratio of 50%, User A decides to borrow 20 ETH. The borrowing rates are approximately 15%. However, it's worth noting that User A's LTV stands at 40%, indicating a relatively higher level of risk. In the event that the value of Cryptopunks drops by 20% to 40 ETH, there is a potential risk of liquidation for the borrower.
Unveiling Prominent NFT Finance Protocols:
To partake in the burgeoning NFT finance ecosystem, familiarize yourself with these noteworthy platforms:
Note: Most of these platforms will have a token. So using them will most likely earn an airdrop.
NFTfi (P2P): The OG NFT borrowing platform that recently launched its Earn program, preparing for the introduction of the NFTfi Token. It offers attractive borrowing and lending terms (high liquidty) and the option to bundle NFTs for reduced gas fees. (no token yet)
blur (P2P): This platform has claimed the top spot for NFT borrowing and lending, and it now offers a "buy now, pay later" option for bullish collections.
ParaSpace (P2PL): Despite its occasional drama, this battle-tested platform boasts solid liquidity and will soon decentralize its operations. (no token yet)
Arcade (P2P): Similar to NFTfi, Arcade.xyz facilitates P2P loans, introduces collection offers, and allows bundling of NFTs, providing ample liquidity. (no token yet)
JPEGd.69 (P2Project): This innovative project introduces its own pETH and pUSDC tokens, creating NFT-backed stablecoins. With great rates and active participation in the curve wars, JPEGd.69 aims to thrive in the upcoming nftfinance narrative
BendDAO (P2PL) allows you to borrow against your NFTs to access large liquidity (74779 ETH in deposit and borrow TVL), earn interest on them in $bend tokens and use downpayments if you cant afford your favorite in one go. (you earn $bend here aswell)
zharta (P2PL) has a great UX and an interesting model in which you borrow from a pool but for a fixed amount of time. Depending on loan length your LTV will Increase/decrease (lower duration higher LTV). Additionally if you choose to repay early you only pay for the duraion lent! They have an early adopter program ongoing rn in which you get rewarded with a Genesis pass (better rates, higher ltvs maybe bigger airdrop? who knows) (no token available yet)
X2Y2 (P2P) the NFT marketplace introduces NFT loans to its platform, allowing users to borrow against their NFT assets.
DeFragDAO, an exciting upcoming project, collaborates closely with treasuredao and enables loans against NFTs such as @smolbrains, Legions, and gmxblueberryclub (no token available yet).
Backed is a fascinating initiative that utilizes UniV3 and offers a diverse range of projects for NFT-backed loans, including (@lootproject) (no token available yet)
Drops (P2PL) adopts a borrowing and lending mechanism similar to @raricapital, where users can deposit multiple NFTs and obtain loans in ETH and USDC.
PineProtocol (P2P) is a lesser-known protocol that provides loans for 56 collections, incentivizing liquidity through their $Pine governance token. They have strong partnerships and continue to expand their offerings.
Astaria focuses on P2PL lending and introduces a unique concept of strategists who appraise NFT collections, creating strategy vaults with suitable borrow and lend terms. Borrowers and lenders can participate in these vaults by lending and borrowing ETH against the appraised NFT collection (no token available yet).
Tools to get an Overview:
SnowGenesis makes your NFTfi borrowing and lending life so much easier! A must use tool for NFtfinancies.
For in depth analytics check out the best Dashboard on NFTfi borrowing and lending made by impossiblefi and metastreets very complete Overview .
How to get started
In case you dont own an NFT let me suggest a few noteworthy collections I am bullish on:
Big Budget (20 Eth +)
Crypto Punks (51 ETH)
Fidenzas (69 ETH)
Nouns (31 ETH)
Auto Glyphs (175 ETH)
Medium budget (5-20 eth)
Azuki (17 ETH)
Chromie Squiggles (11 ETH)
Pudgypenguins (5 ETH)
Miladys (3.5 ETH)
Degods (9 ETH)
Smaller Budget (0.3 - 5 eth)
CloneX (2.5 ETH)
Doodles (2.5 ETH)
Forgotten Runes Wizard Cult (0.6 ETH)
lil pudgys (0.3 ETH)
Step 1 : Buy an NFT (if you own a whitelisted NFT skip this step)
Choose an NFT from the above collections. Important to note is the higher its value the more borrowing against it makes sense.
Use Opensea Pro to get the best price. Look for floor pieces with higher rarity (except you know what you’re doing and go for even higher rarities). Avoid flagged NFTs for now(Red exclamation marks).
Step 2 : Choose a platform of your choice
Choose a platform from above. Remember Peer to Peer is more active and Peer to Pool more passive. Also remember that Peer to Peer might give you higher LTVs. Look out for farming and airdrop opportunities as noted above.
Step 3: Create a loan (NFTfi example P2P)
Head over to NfTfi and connect your wallet that owns the NFT
click on get a loan
Select your NFT
Approve your NFT
Choose the loan type (wETH, DAI or USDC), the amount you would like to have, the duration and the APR and list it as collateral
Wait for a few minutes until you receive offers and select the offer that suits your desires most (accept)
Step 4 : Monitor your loan with Snowgenesis and set a reminder
Step 5: repay your NFT
head to get a loan → loans received and repay the loan in the currency you borrowed
Lets do the same for Benddao (Peer to pool) (Start at step 2 from above):
Step 1: Head over to Benddao
Step 2: Hover over Liquidity and click borrow ETH
Step 4: Select your NFT of choice
Step 5: Set the amount you want to borrow. Tipp: Leave your Health factor above 2 click continue, approve the NFT and borrow.
Step 6 : Monitor through debank
Step 7 : Repay if needed on Benddao by heading to your NFTs and repay
Thats a wrap! Thank you for joining me on this exploration of the exciting possibilities at the intersection of NFTs and DeFi. I appreciate your support and encourage you to share this newsletter with others who may find it insightful. Don't forget to follow me on my social media channels for more updates and engaging content. Together, let's continue to delve into the fascinating world of Web3!