May 14, 2020 ・ 7 min read
NFTfi is a simple p2p marketplace for collaterized NFT loans. It allows borrowers to put up assets for a loan and lenders to make offers to lend in return for interest.
In this article we will go through the basic functionality of the NFTfi platform and answer a few common questions we’ve had already. Keep em’ coming!
Your “home screen” is where you can list your NFTs to get loan offers.
How do I get a loan?
If you go to the borrow tab of the site you will see all your own NFT assets listed. To put up an asset for a loan, simply click on one of your assets, and click “list as collateral” to sign for the asset to be listed. Your NFT will now appear to other users on the loan marketplace and can receive offers.
Once one or several other users have made a loan offer to you for that asset it will change colour to blue. If you click the asset, you will now be able to accept a loan. Accepting an offer causes your NFT to be locked in the contract as collateral and the loan to be paid into your wallet as wETH. Your NFT will now appear in yellow on your “Borrow” screen, indicating it is in escrow.
To repay the loan, simply click on the NFT again and click the yellow “repay loan” button. Make sure you have enough wETH in your wallet to complete the transaction. You also need to make sure you have granted NFTfi permission to manage your wETH otherwise the transaction will fail.
On the lend page, you can explore NFTs and make loan offers.
How do I make a loan to other users?
First, make sure you have wETH in your wallet and that you have signed the permission to let NFTfi manage your wETH otherwise your transactions will fail (a bar will appear on the site until you have granted this permission).
Then proceed to the “lend” tab in the top right corner. Here you will see all the NFTs listed as collateral for loans. Next, find an NFT you’d like to make an offer on. Click on that asset and fill out the loan amount (how much you are willing to lend against that asset), the repayment amount (how much you want back in total) and duration (7, 30 or 90 days) of the proposed loan. Then submit your offer and wait for the borrower to accept your offer.
Once the borrower accepts the loan wETH will be deducted from your wallet and the borrower’s NFT will be locked in escrow in our contract as soon as the loan is paid out. To get the NFT back, the borrower has to repay the full repayment amount.
Make sure you have granted us permission, otherwise the transactions will fail.
What happens if a loan isn’t repaid on time?
If a loan is not paid back in time by the borrower, the asset becomes available for foreclosure by the lender. As a lender you don’t have to foreclose immediately, but if you do, the NFT will be transferred to your account and you will waive your claim for the outstanding loan amount. This is called a non-recourse loan in the normal art/collectible world. In short your loan is directly guaranteed by the NFT itself as collateral, and the asset will sit in escrow in our contract until the borrower has completed the repayment.
This simple mechanism, enabled by our contract, allows lenders and borrowers to interact in a safe, trustless and decentralized way.
Make sure you have both ETH and wETH in your wallet. The platform uses wETH for the loans, but you still need enough normal ETH to complete the necessary transactions.
Why does the platform use wETH?
Wrapped Ether have multiple benefits in the context of NFTfi. wETH is an ERC20 and unlike with standard ETH the ERC20 standard allows the token holder to grant other ethereum accounts permission to spend their tokens. By giving the NFTfi smart contract permission to mange your wETH it becomes possible to make offers using only a signature. It also means we can move the wETH during the start loan and repay loan process.
It also means that lenders can make multiple loan offers on different NFTs with the same wETH balance, reducing liquidity needs and improving platform efficiency and usefulness. This is similar to Opensea offers.
You can easily convert your ETH to wETH (and back) 1:1 on Opensea
As a borrower, are my assets safe during the loan period?
Yes, absolutely! Your NFT is held in escrow in our contract through the entire duration of the loan. The lender does not have access to it. The only way you can lose your asset is if you don’t repay the loan on time and the lender opts to take takes advantage of the foreclosure option. That’s the rules of the game!
The contract is built by a team with expertise from multiple projects involving wrapped NFTs and has been validated by multiple external developers in multiple private reviews.
How much does NFTfi charge?
NFTfi does not charge the borrower anything. Borrowers already pay fees to the lenders. The only fee NFTfi takes is a 5% share of the interest that the lender has earned on a successful loan. Say you lend someone 1 ETH and get 1.05 ETH back a month later, NFTfi would charge 5% of the 0.05 ETH earned. Likewise, no fee is paid if the loan is foreclosed or offers are not successful.
As usage and volume grows, we hope to be able to reduce this fee further.
Why did you build the platform?
Art and collectible markets in general suffer from less liquidity than fiat, equity or other types of assets. However, this is even more true for NFTs as it is still very early days and matching buyers and sellers can take time. New exciting projects go live all the time, but existing players and collectors often have a lot of their crypto wealth tied up in existing NFTs already, so this liquidity issue compounds. Players might miss out on great opportunities or having to sell too cheap to raise cash. Similarly we feel it is a great opportunity for other users to get a return on their ETH while helping the NFT ecosystem instead of just parking it in Maker, Compound or somewhere else. For the astute investor it should provide a more profitable and fun opportunity for a financial return too!
What other risks should I be aware of?
When using the platform, please be aware of a few other risk aspects;
i) As a lender don’t lend too much wETH compared to the value of the NFT. The borrower may chose to never pay you back and simply opt for foreclosure. So pick a loan-to-value ratio you are comfortable with, and don’t make large loan offers on assets you don’t fully understand or can’t value appropriately.
ii) Also a lender also be mindful to only offer longer term (30–90 day) loans if you think that NFT will hold its value through the entire loan period. Projects that have just launched may seem liquid and valuable, but die over 90 days.
ii) As a borrower be mindful of the APR you accept to pay on the loan. Not all loans are good loans, and other users may offer you a better one shortly. We do cap the repayment amount at +50% more than the loan amount to avoid predatory offers — but on a 7 day loan that is still a very expensive APR to pay.
Your ETH and NFTs are at risk if you don’t respect the above considerations. We do a few additional things to discourage direct abuse, potential tricks and cons — and we have also tried to think through potential systemic risk, but please report any suspicious activity you see, so we can investigate further.
The NFTfi Team
This article is for educational and informational purposes only and should not be considered financial advice. Conduct your own research and due diligence before making any investment or financial decisions, such as when considering novel products including NFT loans.
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