NFT Labs: What is NFTfi?

What is NFTfi？

As you can see from the name, NFTfi is a combination of DeFi and NFT.

Launched in mid-2020, NFTfi is a point-to-point NFT mortgage marketplace that allows NFT asset holders to pledge their NFTs, borrow assets, and lend to others. The NFTfi product will provide NFT assets with significant liquidity and lending capabilities to meet the diverse funding needs of users. Depending on the nature of the demand, it can be used for two purposes - lending & borrowing.

If a loan is needed, any ERC-721 token can be pledged. Just wait for the best loan offer.

If you want to lend out crypto assets, find a suitable NFT and post an offer (including loan amount, repayment amount, term, etc.).

How does NFTfi work？

Specifically, borrowers can mortgage any ERC-721 tokens (NFT assets), while other users can provide loans on demand. If the borrower accepts the loan, it will receive the lender's wth and Dai. At the same time, the NFT assets will be locked into the nftfi smart contract until the borrower pays off the loan. If the borrower fails to pay off the loan before the due date, the NFT assets will be transferred to the lender.

The lender can provide loans for any NFT asset it likes and set the loan amount, loan term, and the total amount the borrower hopes to return after maturity. The loan term varies from 7 days, 14 days, 30 days, and 90 days. If the borrower defaults and fails to pay off the loan, the lender will get the NFT.

NFTfi will not charge any fees to the borrower, and the borrower will only pay fees (interest) to the lender.

Steps for NFTfi

First, using the Metamask wallet (using Google Chrome or Opera for crypto wallets), jump to “Borrow” and you can use the NFT assets in your wallet (currently, only some asset types are supported) as collateral.

When you click on an asset, you can see how much money it can be borrowed. Click on the asset image to grant NFTfi Smart Contract Permission, and the NFT asset can be posted on the loan marketplace. Once the transaction is completed, the user can receive offers from other lenders. (Some GAS fees need to be paid)

The asset can then be posted on the NFTfi lending marketplace and used as collateral to obtain a loan (The Sandbox parcel is used as an example in the image below).

Next, wait for other users to make loan offers to the posted NFT. Once the offer is accepted, the wallet immediately receives wETH (i.e., wrapped ETH, packaged ETH, the ERC-20 version of Ether). The entire process is powered and secured by the NFTfi smart contract. Once complete, the NFT assets are handed over to a third party for escrow.

Lending money to others and making a profit

Lending money to others and earning a profit is more complicated than a regular loan, but the rewards are potentially higher. Users can choose the NFT they like in the marketplace and lend to it. The important thing about this part of the process is that if the borrower does not pay the loan back in time, the NFT assets will go to the user who provided the loan.

Selecting an NFT allows you to customize the loan offer - setting the loan amount (how much you are willing to lend), the repayment amount (how much you want to recover) and the loan term (7, 30 or 90 days). The system will calculate the interest rate as a reference.

The chart above shows a loan offer of 0.06 wETH, a 90-day return of 0.08 wETH, and an APR of 135%.

The lender needs to have enough wETH in their wallet to make the loan. After the borrower accepts the loan offer, the wETH in the wallet is deducted. The borrower's NFT is placed in escrow with a third party - the loan is then successfully paid.

What should be aware of when using NFTfi？

For both lenders and borrowers, there are risks associated with using the NFTfi platform to lend. From the lender's perspective, in the event of a borrower default, only the collateralized NFT assets will be received, which requires the lender to set a loan amount in advance that is less than the value of the NFT assets. The value of the NFT assets will need to be carefully assessed by the lender.

Another issue is that the value of the NFT asset may decline or appreciate over time. In the first case, the lender may suffer a loss.

For the borrower to keep an eye on the APR, it may take longer to find a lower APR in cases where demand is not urgent. To avoid predatory pricing (eviction of counterparty pricing), the system caps repayments at 50% above the loan amount.

Core features like NFTfi, which meet users' lending needs and provide liquidity to NFT assets, are driving NFT to a growth turning point while empowering digital collectibles.