Using assets for collateral in loans is not a new concept, so why can’t we use our NFTs as collateral?
Lending Pond is aiming to allow us to do just that.
By putting up your NFT as collateral you can find another user willing to loan you ADA at a pre-agreed interest rate and timeline. Obviously the big risk is, if you don’t pay your loan back on time, the NFT is gone. For Lenders the big risk is the value of the NFT in question crashes and the borrow decides to default on the loan, leaving you holding the bag.
Lending or borrowing is not something you should jump into without researching the risks and potential pitfalls but Lending Pond does offer a quick way to get liquidity from your NFTs.
We asked the team a few questions to get to know more about the service.
It’s important to note that this is not paid promotion nor should the below be construed as an endorsement or Financial Advice. We do you hope you find the interview interesting and it helps you to understand the service a little better.
Why don’t you give us an introduction to Lending Pond, what is it and what does it offer the Cardano community?
Sure! Lending Pond is Cardano’s first P2P borrowing and lending loaning protocol that utilizes smart contracts. Pond allows users to leverage the liquidity in an NFT, similarly to taking equity out of a house through a line of credit.
It offers people the opportunity to receive ADA for their NFT without having to sell their NFT by taking a loan on their NFT. This will unlock lots of liquidity that was previously locked in CNFTs.
Who [is] the team behind the project? Is the team fully doxxed? Has the service/SC been audited?
The team behind the project is Evan, Angus, Stockpicka and Seen. Evan and Angus are fully doxxed, while Stockpicka and Seen are not. However, the entire team are students together and interact in-person on a daily basis. A funding for an official SC audit is estimated to be received by June. Support us in Fund 9!
How does the NFT lending work?
There are two sides to the lending process. First, it starts with the borrower. The borrower lists an NFT that they are interested in receiving liquidity for.
If a Lender accepts the listing, the NFT listed goes into a smart contract and the Borrower receives the ADA they requested in their listing.
If the Borrower repays their loan, the SC sends the NFT back to the Borrower. Only when the Borrower defaults (does not pay back the ADA) is the lender eligible to claim the NFT.
How do you see the use case for this service?
There is a wide variety of use cases! Lenders are using the service to earn yield on ADA that is not possible through staking.
Some individuals are borrowing ADA to mint upcoming projects, invest into passion projects, or just make ends meet. We believe that as this market develops, individuals will be able to create other use cases.
Is there a maximum amount that can be loaned out? What is the maximum loan duration?
There are a few limits on Pond that can easily be changed. At the time of writing, the current maximum loan amount is 500,000₳ and the maximum loan duration is five weeks.
These limits are just here to promote stability.
Once you have entered into a lending contract and tied your NFT(s) into the smart contract what effect does price volatility have on the Lender and Borrower? I.E If the value of the NFT were to either go up or drop dramatically.
This is why it is important to always overcollateralize! A lender should always overcollateralize their loan to protect against price volatility during the loan duration.
What does “overcollateralize” mean? If an NFT has a sale value of 1000₳, an overcollateralized loan would not loan more than 700₳.
This is what gives lenders protection against price volatility. The more overcollateralized a loan is, the safer it is.
Who sets the interest rates for loans and is this regulated at all? I.E are there any measures in place to stop lenders offering really high interest rates or is it down to the borrower to make sure they are aware of the cost of the loan?
Currently, borrowers are setting interest rates. So it is up to the borrower to decide how high of an interest rate they can finance. Lenders will be able to counteroffer in v2, but ultimately, it is up to the borrower to accept a loan they feel comfortable with. There is a max interest rate of 20%.
Who decides if the loan is fair value? Are there any calcs done on the value of the NFT(s) being offered up al collateral or is it down to the Lender to asses the value of the loan.
This is a fully P2P network, so both parties (the Lender and the Borrower) must agree to the terms of the loan.
There is a machine learning program that evaluates whether a loan listing is overcollateralized or not. This will be reflected by a green, yellow, or red triangle in the bottom corner of a listing. While this is not financial advice, it can help educate a user’s decision through presenting the fact of whether the NFT is overcollateralized or not.
I noticed on your Twitter that you need to own an NFT from Acronym DAO, The Ape Society or Lazy Llamas to be able to lend ADA. What is the reasoning behind this? Is this a long term thing or is it likely to change?
The reason behind limiting the number of Lenders is to keep a balanced ratio of Lenders to Borrowers. When the amount of Borrowers to Lenders is not balanced, the opportunities are denied and decentralization is at risk. However, as the amount of volume being traded on Pond is growing substantially, we will be including more projects and allowing their holders to lend.
What are the plans for the future of the project?
Gee that is a loaded question! There is a lot we have in store. V2 of Lending Pond is our priority, with the main features being:
- Faster Loading Times
- Pending Transactions
- Stats Page
- Responsive UI
- Filters and Search
- Additional Asset Data (Floor price, Loan History, etc)
- Mobile Wallet Support
- Multiple Currency Support (stablecoins, etc)
- Smart Contract Updates
- Bundle Loans
- Ambassador Program
Thank you to the team at Lending Pond for answering our questions, we hope you found it informative.
To learn more about the service you can visit their website or Twitter.
Before you go make sure to check out our CNFT Calendar to see what is dropping this week.