🍊 Citrus, the newest NFT Lending protocol on Solana!
If you haven't kept up, there is a new NFT Lending product on the web3 and Solana market now! Citrus, built by Famous Fox Fed, is the latest and maybe most comprehensive one built to date!
These past couple of years, NFTs have made their great entrance into the world and made quite the noise.
These unique digital assets allow for ownership and provenance of everything from digital art and music to virtual real estate and in-game items. However, while NFTs offer many benefits, they can also present challenges when it comes to liquidity and financing.
This is where NFT lending protocols and platforms come in.
🍊 Citrus by Famous Fox Fed is such a project ⬇️
These protocols provide a way for NFT holders to unlock the value of their assets and gain access to liquidity without having to sell them.
Instead, they can use their NFTs as collateral to secure loans from other liquidity providers. This opens up a whole new world of possibilities for NFT creators, collectors, and enthusiasts alike.
👨🏫 A guide to NFT Lending!
NFT lending is an exciting opportunity for anyone interested in the world of NFTs. With lending platforms, you can use your NFTs as collateral to borrow funds, giving you more flexibility and liquidity in your crypto portfolio.
However, it's important to keep in mind that NFT lending is not without risk. Before diving in, it's crucial to understand the potential risks involved and to develop a risk management plan. You should also carefully consider the terms and interest rates offered by different lending platforms to ensure that you're getting the best deal possible.
❓ What is NFT lending?
NFT lending is the process of using NFTs as collateral to obtain a loan. This allows NFT holders to unlock the value of their assets without having to sell them. NFT lending protocols and platforms allow NFT holders to create loan offers for their NFTs with preset options for terms. Borrowers can accept any loan offer that exists for a given collection, with the specified terms.
📊 LTV
Knowing the LTV ratio is important when borrowing or lending NFTs using Solana as collateral. It tells you the value of the NFTs you need to put up to borrow a certain amount of Solana. For example, if the LTV ratio is 50%, and you want to borrow 100 Solana, you would need to put up 200 units of NFTs as collateral.
LTV helps to manage the risk of the loan. If the borrower doesn't pay back the loan, the lender can sell the NFTs to get their money back. But if the NFTs' value drops too much, the lender might not get all their money back. On the other hand, if the LTV ratio is too high, the borrower might not be able to borrow as much Solana as they need. So, it's important to understand LTV to make sure loans are fair and safe for both parties, especially when using Solana or other cryptocurrencies as collateral.
🤑 Benefits
One of the main advantages of NFT lending is that it provides a way to borrow tokens or crypto against your NFTs which can be quite illiquid. These NFTs are not giving holders purchasing power as they are difficult to sell. In case of default, the lender will get the NFT that was used as collateral.
Additionally, it allows NFT holders to gain access to liquidity without selling their assets. This can be especially useful for creators who need financing to fund new projects or initiatives. NFT lending also allows NFT holders to continue to benefit from any future price appreciation of their NFTs, as they still own them even though they are being used as collateral.
⚠️ Risks
As with any type of lending, there are risks involved with NFT lending. The main risk is that of loan default. If a borrower does not pay back the principal plus interest by the end of the agreed-upon term, the loan goes into a default period. During this time, the lender can claim the NFT. If the NFT is not claimed, the borrower still has the option to pay back the principal plus interest to obtain the NFT and complete the loan term.
Another risk is that of volatility in the NFT market. Since NFTs are a relatively new asset class, there is a lot of uncertainty around their long-term value. This means that the value of an NFT used as collateral for a loan could fluctuate significantly during the term of the loan. This can be especially risky for lenders who may end up with an NFT that is worth less than the amount of the loan.
👍 Best practices
If you're considering using NFT lending protocols and platforms, there are a few best practices you should keep in mind. First, always do your due diligence when choosing a lending platform. Look for platforms that have a good reputation in the NFT community and that have a track record of successful loans. Also, be sure to read and understand the terms and conditions of any loan offer before accepting it.
Another best practice is to have a risk plan in place when considering lending. This means understanding the potential risks and having a plan in place to mitigate them. For example, you might consider only lending to borrowers who have a good track record of paying back loans or who have a significant amount of collateral.
Finally, it's important to be aware of the potential tax implications of NFT lending. Since NFTs are a relatively new asset class, there is still a lot of uncertainty about how they are taxed. Be sure to consult with a tax professional to understand the potential tax implications of NFT lending.
✍️ Conclusion
NFT lending can be a powerful tool for NFT holders looking to unlock the value of their assets and gain access to liquidity. However, it's important to understand the risks and best practices associated with NFT lending
To help you get started with NFT lending, here are some tips:
🏎️ tldr;
Do your homework: Research any platform before lending your NFTs to ensure it's reputable and trustworthy.
Know the risks: Make sure you understand the risks of NFT lending and plan for the possibility of loan defaults.
Read the fine print: Make sure you understand the terms and conditions of any loan agreement before signing up.
Diversify your portfolio: Spread your risk by lending to multiple platforms and diversifying your NFT holdings.
Keep tabs on your loans: Stay on top of your loans and keep track of payment schedules and default periods.
🤷♂️ A couple of scenarios in case of high volatility
Scenario 1️⃣
Let’s say an NFT collection floor price goes ⬇️ drastically during the duration of the loan, this impacts the lender and borrower.
Example metrics and data:
NFT collection FP at time of loan proposition: 10◎ - Collection’s LTV = 80%
Loan amount: 8◎ - Interest: 0.15◎ - Total: 8.15◎
APY: 240%
Duration: 7 days
If the floor price of this collection (10◎ initially) goes down or below the total amount to be repaid (8.17◎), the borrowers gain by not repaying the loan. Financially, they get more ◎ by not repaying and getting their NFT back. They can buy one of the floor for less than the total amount they loaned for. They default and the lender gets the NFT.
Scenario 2️⃣
Let’s say an NFT collection floor price goes 🆙 drastically during the duration of the loan, this impacts the lender and borrower.
Example metrics and data:
NFT collection FP at time of loan proposition: 10◎
NFT collection FP at end of loan: 14◎
Loan amount: 8◎ - Interest: 0.15◎ - Total: 8.15◎
APY: 240%
Duration: 7 days
If the floor price of this collection (14◎) goes up, the lender gains more if the borrower defaults. The lender would technically get more value on his loan if the borrower can repay back the loan.
These scenarios are accounting for drastic floor price changes which can happen in the NFT space.
Important to remember ‼️
Many NFT collections have rarity ranks for each item based on traits or a combination of traits. The rarity of a specific NFT in a collection could yield a demand from the borrower to take it into account or enable even more flexible loan customization. Most protocols don’t have a feature for borrowers to set their term loans.
🍊 Citrus by FFF
Looking for a reliable P2P lending platform for your NFTs? You might want to take a look at Citrus. It is a platform built by the experienced Famous Fox Federation team (see my post about FFF here).
With Citrus, you can easily create loan offers for your NFTs and borrowers can accept preset terms for a seamless lending experience.
Citrus offers a safe and secure lending experience with its permissionless smart contract infrastructure that directly connects NFT holders and liquidity providers. The Famous Fox team has no access to any assets in these contracts, so you can rest easy knowing your assets are secure. Plus, Citrus allows you to create a risk plan to minimize any risks associated with lending.
If you don’t trust me, check out the open-source contract!
Once you borrow SOL for your NFTs, they are locked/frozen in your wallet. The NFT cannot be transferred or listed until the loan is reborrowed, repaid, or defaulted.
In the event that a borrower fails to repay the loan, the lender can claim the NFT as collateral. However, if the NFT isn't claimed, the borrower still has the option to repay the loan and keep their NFT.
If you decide to borrow SOL for your NFTs, just keep in mind that your NFTs will be frozen in your wallet until the loan is repaid or defaulted.
This is designed to enable NFT holders to keep their NFT and discord benefits even though they lend their jpeg.
Citrus offers the possibility to customize a loan offer fully. From APY (between 120% and 240%), loan duration (3, 5, 7, 14, 21 days), loan amount, and the # of offers (capped at 50 per transaction) are things you can set yourself.
Borrowers get reduced fees (50% off) if they are the holder of a staked FFF or have a fox on a mission.
Thanks to the integration with Dialect, it will allow Citrus to notify users. A message will be sent to lenders when their loan is taken and repaid. As for borrowers, they will be notified 24h and 2h prior to a loan needing to be repaid
Citrus has just recently shipped the “List NFT” feature which allows the borrower to list their NFT with their own loan terms. This is a major breakthrough in NFT lending protocols which were often optimized for lenders (the ones setting the loan terms).
The starting list is a combination of projects with a current Market Cap of 2.5M USD or higher as well as a few other popular projects within our ecosystem.
If your Solana NFT collection isn't on the starting list, contact the Citrus team to see if they can add it.
So, any more interest? Go check them out and see for yourself if you can improve your NFT lending game!
📋 User Guide
Lender-side
1️⃣ Go to Citrus
2️⃣ After connecting your wallet, choose from the list of verified collections you would like to loan SOL to.
3️⃣ After choosing the collection, customize your offer (APY, Duration, Amount, # of offers) and simply confirm your offer.
Borrower-side
1️⃣ Go to Citrus
2️⃣ After connecting your wallet, you’ll have the verified collections you own at the top of the list (green lightning bolt). These are the collections for which you’ll put up your NFT as collateral.
3️⃣ From these collections, you’ll see available loan offers and pick one.
4️⃣ After choosing the offer, the borrower will select the item of his choice from the NFT collection as the collateral and confirm the loan.
It is also possible to accept multiple offers at once (Bulk loans) where the borrower selects the number of items he wishes to use as the collateral for each loan.
5️⃣ As borrowers, they can repay, default, or reborrow from their dashboard.
Reborrowing allows borrowers to move their NFT to a new loan of their choice and only pay the difference. A very nifty feature for borrowers short on funds to pay off their current loan.
💪 A new feature from Citrus
Citrus has now built a new feature for borrowers to have greater control over their loan offers. The “List NFT” option enables borrowers to set their own loan terms.
After choosing your loan terms (APY, Duration, Offer amount, and the number of offers), the borrower is able to select the NFT of his choice from the collection.
As a Lender, you can see available NFTs under the collection "NFT Listing" tab and fund a loan offered by a borrower.
🤝 Ongoing loans and conclusion
When the loan is confirmed by the borrower, it starts and is executed along the loan terms set by the lender.
The borrowers will pay back the principal + interest by the time the loan’s duration end. If they don’t, the loan goes into a default period during which the lender can claim the NFT. Although, the borrower can repay the loan as long as the NFT has not been claimed.
📈 Track everything from your dashboard
From the profile page, you will be able to track everything about your loans, offers, and stats.
🥰 Early Sentiment
🔢 Metrics
You can see each collection's total active loan amount and the latest loans.
🌀 Total Pool: 5712 SOL
💰 Total Value Loaned: 7430 SOL
That is it, folks! I hope you enjoyed this piece. It was such a cool opportunity to write this in collab with FFF. Such a big fan of what they are doing and a Fox owner as well!
FFF to the freaking moon 🌕
If you enjoyed this, do not hesitate to subscribe to my substack and make sure to follow the 🦊 fed 💪