LiquidNFTs.com — Unlock the Power of Your NFTs!

LiquidNFTs is a fully decentralized peer to peer loan marketplace for NFTs. Anyone can use this smart contract to either take out a loan using their NFT(s) as collateral, or fund loans to earn borrowing fees. NFT owners have the option to create fully customizable loan proposals for their specific NFT which initiates a five day attraction phase to get their loan funded. Alternatively, NFT owners can use the available “Instant Pools” option to take out a loan immediately if they accept the terms of the pool. In the case of a loan default, the NFT is immediately auctioned off to pay back the contributors, or if a single address funded the loan, the NFT is immediately transferred to that address.

Instant Pools

Instant Pools are single-asset pre-funded liquidity pools that NFT owners may use to instantly take out a loan. Pool characteristics consist of:

• Hard-coded terms — Each pool has locked terms aligning both lenders and borrowers so that lenders can pre-spawn a liquidity pool that enables NFT owners to borrow instantly. Each pool will have a different set of terms consisting of: The NFT set (ex Bored Apes), Currency (ETH, USDC, etc.), and Collateralization ratio (ex 50% LTV) — This ratio is determined by the floor price of the entire NFT set plus additional rare traits. For example: a 50% LTV Bored Ape pool would allow up to 40 ETH loans per Ape if the floor is 80, but would also allow 200 ETH loans on trippy Apes if the trippy floor is 400. Floor prices for each trait are hard coded in each pool through the use of a merkle tree root (no oracles are used).
• No loan lengths are specified. The NFT owner may take their NFT(s) out of the pool at any time as long as the loan principal and borrowing fees are paid back first.
• Lenders may fund the pool or retrieve their funds at will. A high amount of loans vs funds in the pool could slightly delay lenders from retrieving their funds, however, max utilization means significantly higher APYs for lenders, which would incentivize more funds into the pool and also cause some NFT owners to redeem their NFTs under the stress of high fees, freeing up more funds in the pool.
• Variable APY — The WiseSoft team has developed a sophisticated on chain machine learning algorithm that adjusts the APY rates in liquidity pools according to supply and demand. A higher utilization ratio of funds creates higher APY (better for lenders), and a lower utilization ratio creates lower APY (better for borrowers).
• Borrowing fees — When an NFT owner borrows from the pool, they pay their interest ahead of time (up to 1 month ahead) based on the current rate of the pool. Then, at the end of the first payment period, the pool adjusts the fees on the loan, credits or debits the borrower for the difference caused by variable APY, and then allows the borrower to pay ahead for the next time period.
• Non-Oracle Adjustments — Over time, the floor values for NFT traits will change, creating a need to create a new merkle tree root. Since changing the floor values could be used as an attack vector, two governance features have been hard-coded. First, the changes to floor values cannot be more than 25% greater than the previous values, and any changes take 2 full weeks to go into effect. This way, lenders have ample chance to exit the pool should they disagree with the adjusted floor values. For the borrowers in a pool, this can create the need to partially pay back some of their principal at the end of their next payment period if the floor value of their NFT has dropped.
• Risk levels — The max loan to value ratio (LTV) of a given pool determines the risk level, higher LTV pools being riskier and lower LTV pools being safer. LiquidNFTs established 3 categories of LTV pools: 25%, 55%, and 80% LTV pools (low, medium, and high risk respectively). All risk is assumed by lenders, who must weigh the possibility of the price floors dropping past the buffer created by the LTV ratio. This scenario would incentivize mass defaults on loans, and a partial loss of principal for all lenders, if the default auctions for the NFTs produced less collateral than what was borrowed.

Custom Loan Proposals

While Instant Pools are expected to cover the majority of demand for loans, NFT owners can instead create a highly customizable loan proposal for their specific NFT. This allows for finer tuned adjustments in the terms of the loan and opens up possibilities for unusual NFTs to be used, such as an NFT for a Rolex watch, a winery, a unique 1 of 1 piece of art, or an NFT that is the key to unlocking actual cryptocurrencies stored in a smart contract vault. Although LiquidNFTs does have a marketplace for users to discover custom loans, it is mainly the NFT owner’s responsibility for securing funding for their proposal. LiquidNFTs facilitates this by providing a custom link for loan proposals that can be shared across social media.

Loan process: NFT owners que their NFT(s) in the collateral contract, getting ready to lock in a proposal as soon as parameters are set. Each owner chooses their own parameters:

1. Time duration of loan — This can be adjusted down during the attraction phase
2. Currency — Must be the same for borrowing and contributing (WETH, WBTC, USDC, USDT, UST, or WISE)
3. Loan amount — Setting this amount below the actual value of the NFT increases the chances of getting funded. The owner may back out of the proposal if 10% the amount is not met within the 5 day attraction phase time period.
4. Borrowing fees/APY — The owner chooses the borrowing fees percentage they are willing to pay for the loan. NFT owners may adjust their offered APY up during the attraction phase to increase their chances of getting funded.

Attraction phase: After an NFT owner submits a proposal, a 5 day attraction period commences, allowing anyone to contribute funds to collateralize the loan.

1. Contributors may deposit any amount of funds in the designated currency up to the full loan amount.
2. Sole Contributors: Until the estimated value of the NFT is met, one single address can deposit the full loan amount, which will immediately refund any previous partial contributors.
3. If the attraction period ends and the funds deposited equal less than 10% of the loan amount, then the loan will not go into effect. The contributors may withdraw their contributions and the NFT is returned to the owner.

Payment process:

1. The NFT owner may pay as much of the fees ahead of time as they want in order to skip the need to pay fees daily. The contributors are able to claim their fees earned daily.
2. The contract has a mass claim function for contributors to claim all their fees when contributing for multiple NFTs.

Loan Defaults:

Applies to both custom loans and Instant Pools:

1. If an NFT owner is not up to date on their loan’s borrowing fees, an additional late penalty of .5% of the loan amount per day is charged and their loan starts to default. After 4 days of non payment, the late penalty doubles to 1% principal per day for the remaining 3 days such that non payment for 1 week costs the NFT owner an additional 5% principal on top of regular borrowing fees.
2. Non payment for 7 full days causes the NFT to go to auction. The auction phase lasts 7 days. At any time during the auction period, the owner may redeem their NFT by paying back principal + 10% + feesLiquidNFTs White Paper

Custom loans specific details:

1. If the owner has paid their borrowing fees for the full duration of the loan, but does not pay back the principal within 7 days after the loan’s end date, the contract immediately sends the NFT to auction. The owner must pay back principal plus a 5% late fee in order to redeem the NFT.
2. If there is a sole contributor, then the auction period never actually auctions, but instead serves as a last chance for the owner to redeem their NFT before it automatically goes to the sole contributor as payment.
3. In the case of multiple contributors, the NFT is auctioned for a period of 7 days. If the proceeds of the auction are less than or equal to the loan amount plus fees, then the proceeds are divided proportionally between the contributors. If the proceeds exceed the loan amount plus fees, then the excess proceeds become revenue for the contract.

Revenue

The contract creates revenue by taking a slice of the borrowing fees paid by the NFT owner at the current rate of 20% for all cryptocurrencies. For example, a $10,000 WETH loan that accrues $1000 in borrowing fees will create $200 in revenue for the contract and $800 in revenue for lenders. 100% of revenue goes to stakers on the platform. Token TBD launched by WisePad via 50 day auction, liquidity paired with WISE and locked, etc.