Looking at the bigger 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 satisfy different user needs and that 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 the assets are closely tied to the brand that the artist has created for himself. But even with utility, we still have a lot of intrinsic value left derived from the buyer’s perception of actual price alone, and scarcity plays a big role in both niches, making an objective assessment even more difficult by 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 becoming even lower, we can only estimate that the volume of new projects and ideas will increase in the future.
Taking this context into consideration, let’s see what role automation will play in the NFT lending space.
Loans with fungible assets vs non-fungible assets
Crypto lending platforms have grown exponentially over the past couple of 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 was wondering what the usefulness of this space would look like in the future, we can now see that loans have played a central role in delivering real value to the market with products. that actually had real adoption and traction.
We believe the case is also valid for NFTs 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 consider value. intrinsic.
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 see that most platforms only work with a handful of assets with 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 actual assets have a wide variety of properties which make most of them unique.
- With the fungible loan, the valuation is carried out automatically by oracles with great precision and the price is objectively determined by the market. In the NFT space this will be a big challenge because with most projects the price is not determined by volume but by scarcity and therefore the actual valuation is mostly subjective.
- With fungible loans, liquidation occurs automatically when the loan price approaches the market price, increasing the LTV ratio to a specific threshold. With this mechanism, the lenders and the platform can never lose in the whole process. In the context of NFTs, although we could have thresholds to check the actual volume for the whole project or the asset class associated with the in-game collateral asset, as the market is driven by scarcity by design , there will still be friction and downtime in the scenario of automatic asset liquidation by the system in order to cover the loss for the lenders.
Considering these factors, we can already see that NFT loans pose unique challenges compared to âtraditionalâ crypto loans 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 the market that reduces the gaps and friction between lenders and borrowers.
Make Fast Loans Possible For NFT Loans
One of the main drawbacks of a P2P market 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 meeting this challenge is to have a P2P market as a commodity and in addition to offering users the possibility of obtaining a quick loan which is granted by a loan pool only for specific assets which are considered to be adapted by our system.
In order to make this possible, we would need to take into consideration a few main factors that are related to the project and the asset.
In recent times, there has been some debate within the NFT community about how best to value each asset, but in our opinion the fact that you can’t objectively value an asset is what makes it so special and we don’t need to know the “objective” value of the asset in order to make the credit work together.
In order to make the loans work in common, we need to leave the market value of each asset subjectively and only focus on those with a proven and reliable business track record from projects or artists who have a positive track record and use the LTV ratio. and the interest rate as the main tools. this would help us mitigate the overall risk of the loan.
In this context, we would need to focus better on valuing the actual project rather than the asset to ensure that in the event of default, the pool of lenders will not be at a loss.
By creating a good LTV ratio and a good balance of interest rates based on actual gambling risk, we can also ensure that we will only need a small percentage of the total defaulted assets in our custody. sell in order to break even.
Metrics such as volume and growth for the specific project, asset price range / average asset value, and other metrics related to the overall due diligence process are essential for getting quick loans with loan pools available.
At Stater, we believe NFTs are here to stay and giving users the ability to leverage their assets without selling them will bring a new wave of innovation to the space.
As we approach the launch of the mainnet, we prepare to make further upgrades to our core product and to make fast lending and group lending a reality for our users.
Thanks for reading and stay tuned for more updates! Remember to keep in touch, check out our website and follow us on Twitter, Telegram and Discord.
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