- Education And Career
- Companies & Markets
- Gadgets & Technology
- After Hours
- Banking & Finance
- Energy & Infra
- Case Study
- Web Exclusive
- Property Review
- Digital India
- Work Life Balance
- Test category by sumit
Strip Finance Introduces Collateral To Unlock Billion Dollars In NFT Liquidity
NFTs or Non Fungible Tokens, as we call them, are certificates on blockchain that can verify the existence and ownership of a digital collectible.
Photo Credit :
As we progress through 2021, the exponential growth of NFTs has been the talk of the town, making it the latest addition to the future of the decentralized world. We saw NFT marketplaces like OpenSea do USD 3 billion in sales in August alone. Further projects like Bored Ape Yacht Club took over Twitter with their generative-profile avatars. Top celebrities, athletes, and even companies like Visa bought rare NFTs for hundreds of thousands of dollars.
NFTs or Non Fungible Tokens, as we call them, are certificates on blockchain that can verify the existence and ownership of a digital collectible. ‘Non-fungible’ more or less means that an object is unique and can’t be replaced with something else.
While the rise of NFTs is unquestionably impressive in such a short period, there is still one missing piece in the ecosystem that limits more user adoption. The missing piece is liquidity. It is not certain whether the demand for an NFT collection stays the same over a period of time. A lot of variables come into play. One might not receive enough bids, or the market can go dry.
This is where the collateralization of NFTs comes into play. By using NFTs as collateral, one can access the required capital. And when they pay the amount back, they will regain ownership of the NFT.
The founders of Strip Finance are veteran crypto entrepreneurs who conceptualized the idea to solve the massive opportunity of the illiquid market in the NFT space by building a platform to enable borrowing and lending.
Enabling NFT owners to take loans against their assets
The basic principles in a lending/borrowing market remain the same for NFT owners. However, unlike traditional markets, NFTs have no set limits of use cases. They can range from digital domains to digital art pieces. It can be anything with good market demand.
For creating the required liquidity, the platform brings lenders and borrowers together on one platform. If someone wants to borrow, the first step would be to list their NFT on the P2P marketplace. The lenders could then start offering how much they are willing to lend against that particular NFT. The platform also provides additional details like loan term length, frequency of payments, and liquidation terms, to keep both parties well informed.
At the moment, the ability to negotiate is limited, and offers will be rejected if the borrower does not respond within a specified time. Once both parties agree, the ownership of the NFT will be transferred to a smart contract escrow system that belongs to the marketplace.
When the borrower returns the loan amount (principal plus interest), they get back their NFT used as collateral. However, if the borrower does not fulfill the loan package, the lender will be able to call the loan and complete the settlement by taking possession of the NFT.
This lending and borrowing mechanism will make a difference in the NFT market, given that there will be enough lenders accepting NFTs as collateral.
Solving the major problem of price discovery in the NFT market
The price discovery of NFTs is not done through Strip Finance. Instead, the platform extracts pricing data and other information from NFT marketplaces such as Rarible, SuperRare, and OpenSea.
According to Yash Jejani, co-founder of Strip Finance, in decentralized P2P lending, individual lenders will decide the fair value of an NFT after considering different data points such as artist profile details, past sales aggregates, NFT’s trading history, owner’s risk score etc. In addition, the platform also plans to provide a second option, i.e., pool lending, for deploying capital and offering fair prices for NFT holders. This is a fast lending option, as the liquidity will be higher.
When bids are invited for the NFTs on the Strip Finance platform, users will get realistic offers with respect to current market prices. In addition, the different NFT offerings will provide lenders with choices to make an informed decision while deploying capital. As a result, all the desired NFTs will get a fair valuation.
From what we have seen till now in the NFT space, it is clear that technology is not limited to just replacing physical art with digital art. It is going to be much bigger than one can anticipate. Once the power of DeFi applications is unleashed, we will see a considerable uptick in the growth of the market and the useability of NFTs.
As a result, NFT loans and lending marketplaces like Strip Finance will play a huge role in helping users get a fair valuation of their assets. But, more importantly, it will give them enough liquidity and capital to explore other investment options.