The news has been in the air for weeks, but we are now finally ready to introduce you to Abracadabra Money’s latest product: AbraNFT !
The NFT market has experienced incredible growth and surged to a $40B industry in 2021, locking a large amount of capital in this new asset class. Increasing liquidity for usually illiquid assets has been a major topic of discussion within the NFT community. Abracadabra.money specialises on capital efficiency and was able to bring forth a new era of efficiency in DeFi with its cauldron design and MIM stablecoin. Bringing our DeFi expertise to this emerging class of crypto assets, helped us identify the growing need to improve NFT liquidity.
Introducing AbraNFT, a peer to peer lending market, allowing NFT collectors to open time-based borrowing positions on their precious NFTs while yield farmers can deploy capital which earns lucrative yield from this fast growing asset class.
AbraNFT enhances the NFT ecosystem by bringing a powerful toolkit to this emerging class of crypto assets.
What is AbraNFT?
AbraNFT is a peer to peer lending market, built on top of our brand new non-fungible lending engine, where users can open time-based MIM borrowing positions using their NFT as collateral. AbraNFT will introduce Abracadabra Money to the NFT ecosystem, helping traders, yield farmers and retail users to get the best from their NFTs!
Together with this medium article, we are also happy to announce the start of a C4 audit contest on AbraNFT smart contracts, find more about it further down in this medium!
AbraNFT is a two sided equation, made by borrowers and lenders .
The Borrower: An NFT collector who seeks to unlock capital of their NFT portfolio by obtaining a MIM loan against their NFTs.
The extra capital can be used freely, for example to buy new collections, participate in yield strategies or increase exposure to an NFT before an airdrop announcement. As long as the borrower respects the terms of the loan and pays the interest in full, the NFT will be returned at the end of the lending period.
The Lender: A Yield maximizer, who seeks to generate yield by deploying MIM loans and accepting NFT’s as collateral.
A successful lender accurately determines the value of an NFT and gives out loans to borrowers. A recommended loan, targets 50%-70% of the value of the NFT. Such a loan to value ratio minimises risk during a loan default while still offering lucrative opportunities to borrowers. Picking the right loan to value helps maximise returns for the lender. In case of a loan default, the lender will ideally end up with a discounted NFT (30–50% discount due to the initial loan target). The main task for a lender is to correctly predict the value of NFTs and lend out capital against a specific time frame to earn lucrative yields on this new asset class.
For a market to take place, lenders and borrowers need to agree on NFT loan terms. Every AbraNFT loan position consists of:
- An NFT that collateralizes the loan, provided by the borrower.
- An amount of MIM borrowed using that NFT as collateral, provided by the lender.
- An interest rate paid by the borrower on the borrowed MIM.
- A timeframe on which the loan needs to be repaid. If the loan is not repaid before the expiry date, the NFT ownership is transferred to the lender, and the debt is settled.
Once a lender and a borrower agree on the parameters above, the loan is opened!
As mentioned above, it is important to note that AbraNFT loans are time-based, meaning that liquidations happen only if the borrowed MIM are not repaid in the pre-decided amount of days. The NFT price does not affect the loan itself!
AbraNFT will be a powerful tool in the NFT space as a whole!
When users think of lending and borrowing, they think of the traditional sense of “I will lend out item X in order to make it liquid without selling it” and on the other hand, “I will borrow item X in order to use it for Y”. With the NFT lending space there are a lot more opportunities.
Take for example the aspect of you wanting to buy a BAYC, you however believe that the current prices are high, but at the same time if the price were to go to X then you are willing to buy it. You could solve this by setting a Limit Order on Opensea or the other NFT exchanges. Or, you could instead lend out the stablecoins you have to buy the BAYC, earn yield on those stablecoins and take a chance at actually receiving the BAYC as the lender did not pay back the loan in time.
Thus in a sense, lending out stables for NFTs, is almost like a yield aggregating limit order.
Besides this you may believe the NFT space is the future and also a place where you can earn yield, maybe you want to leverage trade NFTs, meaning you want to give your BAYC up for collateral to buy another?
NFTs and DeFi together, will make an extremely nuanced and exciting opportunity, and AbraNFT is exactly made for this, we can’t wait to see what ideas the community have on how to use the platform!
To start, only bluechip collections like BAYC, Azukis and Cryptopunks will be available on AbraNFT, but our smart contracts allow the use of every Non-Fungible token! As time goes by and adoption increases, more and more collections will be available!
Same as all the Abracadabra Money products, part of the fees collected by AbraNFT will be redirected to sSPELL and mSPELL fee distribution mechanics. If you wish to learn more about it, make sure to read here. Stay tuned because more details about this will be made public once we approach the launch!
We are nearly there! AbraNFT smart contracts are mostly ready, and are currently being the main focus of a Code4rena Audit contest!
The C4 audit contest is live now, so if you are interested in having a look at them, and help making sure they are safe, please visit here!
Credits: Jaime Robles, Code4rena
Once the C4 audit contest is over, we will finalise the UI and launch AbraNFT right away! As we get closer to launch, we will share some sneak peek on the user experience, so feel free to tell us every suggestion you may have!
All the resources you will need to understand how this product works are currently being developed, and will be available at launch, expect more articles on AbraNFT in the upcoming days!