What the Future Holds for NFT Loans – Advocacy for Quick Loans and Group Loans
Look at the big picture
If we take a look at the NFT market today, we can see that there are two main niches that have gained the most traction and are the main drivers of growth: Games and Art.
You could say that the two niches cater to different user needs and each is quite different in how collectors perceive the properties that give these assets value.
For example, in gaming, we have more utility attached to these assets, while in art, assets are tightly tied to the brand that the artist has created for themselves. But even with utility, we are still left with a lot of intrinsic value that comes from the buyer’s perception of true price alone and scarcity plays a big role in both niches, making an objective assessment even more difficult. compared to fungible tokens. .
Looking at the market in terms of adoption, we can immediately notice that there will always be a great diversity of asset types and a great influx of new projects launching and testing new ideas and with the barrier to entry of lower and lower, we can only estimate that the volume of new projects and ideas will increase in the future.
With this background in mind, let’s see what role automation will play in the NFT lending space.
Loans with fungible vs. non-fungible assets
Crypto lending platforms have grown exponentially over the past two years and with the emergence of DeFi in the space, we have seen the growth accelerate even more. Compared to the 2018 era when everyone wondered what the usefulness of this space would look like in the future, we can now see that loans have played a central role in providing real value in the market with products that have actually had real adoption and traction.
We believe the same is true for NFTs as well and as the market grows, the need for collectors to leverage their assets without selling them will be natural and perhaps even stronger if we take intrinsic value into consideration.
But there are a few key differences when we compare loans with fungible and non-fungible assets:
- If we look at loans with fungible assets, we can see that most platforms only work with a handful of assets that have high liquidity. In the NFT space this will be impossible as there will always be a wide range of projects and within each specific project the real assets have a wide variety of properties which makes most of them unique.
- With fungible loans, the valuation is automatically made by oracles with great precision and the price is objectively determined by the market. In the NFT space, this will pose a great challenge because with most projects, price is not determined by volume but by scarcity and therefore actual valuation is mostly subjective.
- With fungible loans, liquidation occurs automatically when the borrowing price approaches the market price, raising the LTV ratio to a specific threshold. With this mechanism, the lenders and the platform can never lose in the whole process. Under NFTs, even though we could have thresholds to verify the actual volume for the entire project or the asset class that is associated with the collateral asset inside the game, because the market is Driven by scarcity by design, there will always be friction and downtime in the scenario of the system automatically liquidating assets to cover the loss to lenders.
Considering these factors, we can already see that NFT lending poses unique challenges compared to “traditional” crypto lending with fungible tokens, but all is not lost.
At Stater, we believe this is an opportunity to rethink how we can bring an amazing product to market that reduces spread and friction between lenders and borrowers.
Making Quick Loans Possible for NFT Loans
One of the main disadvantages of a P2P marketplace is that it generates friction by design and makes it difficult to match lenders and borrowers with the same goals and desires.
Our approach to this challenge is to have a P2P marketplace as our core product and in addition to offering users the option to get a quick loan which is granted by a lending pool only for specific assets which are considered suitable by our system.
In order to make this possible, we would need to take into consideration a few main factors which are related to the project and the asset.
In recent times, there have been debates within the NFT community about the best way to value each asset, but in our view, the fact that you can’t actually value an asset objectively is what makes it makes it so special and we don’t actually do it. need to know the “objective” value of the asset for the pool loan to work.
In order to make pool lending work, we should let the market price each asset subjectively and only focus on those with proven and reliable business track records of projects or artists with positive track records and use the LTV ratio and the interest rate as the main tools. this would help us mitigate the overall lending risk.
In this context, we should focus more on the valuation of the actual project rather than the asset to ensure that in the event of default, the loan pool will not be at a loss.
By creating a good LTV ratio and a good balance of interest rates according to the actual gambling risk, we can also ensure that we will only need a small percentage of the total assets in default in our custody to sell to break even.
Metrics such as volume and growth of a specific project, asset price range/average asset value, and other metrics related to the overall due diligence process are key to making quick loans available with loan pools.
At Stater, we believe NFTs are here to stay and providing users with the ability to leverage their assets without selling them will bring a new wave of innovation to the space.
As we get closer to the launch of the mainnet, we are preparing to bring new upgrades to our main product and make quick loans and group loans a reality for our users.
Thanks for reading and stay tuned for more updates! Don’t forget to stay in touch, check out our website and follow us on TwitterTelegram and Discord.