Welcome back to episode #4 of my adventures on Solana! 🚀
Lending your NFTs for some ◎SOL is something that I have been playing with these past months. It allowed me to get better returns than other traditionnal ways to supply/stake SOL.
But what are NFT Lending Protocols?
This is my attempt of writing a beginners guide about NFT lending. 📖
What it means? The best protocols? The risks? And more…
Let’s get into it! 💪
🙋♂️ What is NFT Lending?
NFT lending involves using Non-Fungible Tokens (NFTs) as collateral for a loan. Investors or lenders offer these loans in order to earn interest on their money, as the returns are usually higher than those of traditional or crypto-based loans. Similar to cryptocurrency lending, NFT lending uses digital currencies as collateral, but with NFT lending, borrowers use their NFT assets as security to obtain the loan.
⚠️ The Risks
NFTs can be highly volatile, meaning their value may drop drastically in a short amount of time. If this happens before the loan is repaid, the lender could suffer a loss.
🙋♂️ An example:
I lend 180◎ for a Solana Monkey Business which has a floor price (fp) of 200◎ (14 day duration) which would pay 6◎ of interest (186◎ total).
If the SMB fp drops below the total (186◎) after the 2 weeks, the borrower (NFT holder) could default.
This means that you get “less” value as the NFT fp is below the amount of ◎ you lent.
Many NFT collections have items with varying rarity levels, which can significantly affect the value of the item. Not all items are valued at the floor price, which poses a problem for protocols that do not take rarity into account. No protocols do this to this day.
🤳 My favorite NFT Lending Protocols
Before I tell you about the two protocols I have used, it’s important to know that I never used one of my NFTs as collateral for a loan yet. So only provided ◎ to borrowers for now.
Shark.fi
As a lender, I have the choice to lend my ◎ in return for the collateral/NFT that I want. The amount of ◎ you wish to loan will hence have an impact on the collections you can loan against.
After choosing the NFT collection, you will make an offer (which you can revoke). The borrower will accept your offer (or not) and the loan will start.
Each collection have different durations and APY%.
The borrower will be able to repay you until the end of the loan. If not, you will get his NFT.
On the borrow side, I can offer my NFT as collateral for a loan. And then starts the loan and same repayment process.
Additionally, you can setup notifications to be alerted when a loan is repaid or other.
As a user of Sharky.fi, you earn rewards in Sharky points which you will be able to trade for their token $FISHY.
🦈 NFT
Sharky.fy has a NFT collection “sharx”. You can use the token $FISHY to feed and grow your sharx into a whale sharx.
Frakt
On the other end, I also have used Frakt which works a bit differently than Sharky.fi.
On the lender’s side, I can lend the amount of ◎ I wish. No specific NFT collection needed.
On Frakt, I select the lending pool (one for each NFT collection offered). These pools have varying APYs. You get rewarded with $SOL and can withdraw at any time. No minimum duration. You can simply pick the pool with the highest APY.
For the borrower, as you are getting SOL from the pool of the NFT you are putting up as collateral, this is instant liquidity. No need to wait for the right offer from a unique lender.
Borrowers have the flexibility to customize the duration and get rewarded in $FRKT token.
🖼 NFT
Frakt has two NFT collections. “FRAKT” and “Pawnshop Gnomies”.
You can stake your FRAKT NFTs and receive $FRKT as well as stake your $FRKT.
This is no complete guide as I am not diving deeper into their inner workings, tokenomics, and more detailled utility. Could be for a later, more technical episode. 👀
If you enjoyed this episode, subscribe to join me on this learning journey and go read the previous episodes! 🤗