P2P Loans
Last updated
Last updated
One of the biggest requests our community has consistently asked for since our automated escrow hit mainnet is the ability to collateralize NFTs for a loan.
So we’re doing it!
We’re building a P2P lending protocol in which anybody can create a loan request using their NFTs as collateral. The lister can state their terms (i.e., loan amount, interest rate, and duration) and lenders can then browse the loan listings market to find a loan request they wish to fulfill.
We also have a Discord integration which allows potential lenders to contact listers in a private thread to negotiate terms of the loan.
To help you understand how P2P lending works, consider this example:
Let's say the Degen Ape Academy floor is 65 SOL.
Miles has a DAA and needs SOL for an upcoming mint (or perhaps he wants to buy the dip on another project).
He creates a new listing, asking for a 50 SOL loan for 30 days with 10% interest at maturity (i.e., he will need to pay back 55 SOL after 30 days to retrieve his collateral).
Snappa sees this listing and is interested. He can accept the proposed terms and Miles will receive his 50 SOL loan. However, Snappa feels more comfortable with only lending 40 SOL, so he clicks the “Discord” icon on the listing which creates a private thread between himself and Miles.
Since 40 SOL is good enough for Miles, he updates the listing to 40 SOL for 30 days with 10% interest (i.e., he will need to pay back 44 SOL after 30 days to retrieve his collateral).
Snappa accepts, provides the loan, and the 40 SOL is sent to Miles while his DAA is held in escrow as collateral.
Miles makes use of his liquidity and returns 30 days later to pay back the loan with interest and receives back his Degen Ape. On the off-chance that Miles is unable to payback his loan within the allotted time, he will lose his collateral to Snappa.
NOTE: interest on loans is prorated, meaning that if a borrower pays back the loan before the deadline, they will only pay a portion of the total interest. However, a minimum of 30% of the total agreed upon interest must be paid -- so "proration" for early payback after 30% of the duration is completed.
Our team is excited about the P2P collateralized NFT loans market. We believe that giving individuals the opportunity to calculate their own risk/reward in lending will create highly liquid markets.
While automated loan pools can provide instant liquidity (a big plus to be sure), one perceived weakness is that these protocols necessarily take on as little risk as possible by offering low LTVs (loan-to-value)—often with short durations and high APYs—which create unfavorable terms for borrowers.
Additionally, traditional loan markets are highly dynamic and subject to several variables such as Fed interest rates and general market conditions. Since crypto prices move especially quickly, automated protocols may struggle to account for all variables in a way that protects their own assets but also provides value to borrowers.
We believe allowing Lenders to define their own risk/reward and giving them the ability to negotiate terms with Borrowers will create a win-win scenario for borrowers and lenders alike.
Borrowers will be able to receive higher LTVs with longer durations and lower APYs through privatized agreement, and Lenders will be able to outperform Solana staking by providing loans back by NFTs that they would be happy to own in the event of default.
Another strength of an individualized P2P loan market is that it creates a lending market for rare NFTs.
For example, since automated loan pools calculate loan amount using a fixed LTV based on a collection’s floor price, if someone were to collateralize a rare NFT (e.g., an alien SMB) the pool might calculate a 50% LTV; but in reality, the borrower would receive only a 25% LTV if the alien SMB floor is ~2x higher than the SMB common floor.
With individual lenders personally valuing each NFT and loan request, they may be able to provide higher LTVs to the borrower if they recognize a coveted attribute in the listed collateral.
There is 3% platform fee on all interest paid.
Example: Let’s say a 40 SOL loan @ 10% interest for 30 days was paid back after 15 days. The borrower would need to pay 42 SOL total (40 SOL principal + 2 SOL prorated interest). The platform fee of 3% would apply to the 2 SOL interest (i.e., a 0.06 SOL fee), so the lender would receive back 41.94 SOL after fees.
We dedicate 50% of all platform fees to the Yawww Treasury for the benefit of Yawww NFT holders. For more information on the Treasury and how it benefits Yawww NFTs, see the The Yawww Treasury section.
