Many NFT loan projects lost significant amounts of liquidity during the recent bear market. In addition to the interest rate on borrowed NFTs increasing, the number of users choosing to let go of their assets instead of paying back loans led to a state of crisis in one project, BendDAO.
DefiLlama, an anonymous individual’s DeFi project aggregator, recently tweeted that the smart contract code for a novel nonfungible tokens (NFT) borrowing and lending protocol is nearing completion. The protocol, named “LlamaLend,” aims to alleviate NFT holders’ need for liquidity holding their digital currencies.
The NFT holder’s LlamaLend GitHub page says: “If an opportunity arises for the holder to liquidate NFTs, all they can do now is sell them.”
According to its GitHub page, LlamaLend will allow users to deposit their NFTs, get a signed price attestation from a server, and borrow Ethereum (
Users can borrow up to one-third of the NFT’s floor value and repay the loan at any time. Users will only be charged interest for the time used. The loan will be implemented at a pool utilization rate.
Have finished the llamalend contracts and will be introducing it soon. Does anyone want to attempt to break them?
In order to liquidate NFTs on LlamaLend, pools won’t have a built-in liquidation system. Instead, the liquidator is the owner of the NFT collection—they have the power to decide how to deal with bad debt. Examples include holding an auction for the NFTs, or extending repayment plans. 0xngmi, on the other hand, proposes an extra late fee that scales linearly by 100% of the borrowed amount every 24 hours to deter repayments.
NFTs would be able to save a lot of money by using the protocol since they don’t need to update their prices on-chain constantly, says 0xngmi. In addition, an oracle system would also be installed to get the NFT borrow price using a single request.
Uniswap is eyeing NFT financialization and is in negotiations with lending protocols, according to reports.
Due to the low liquidity in NFT lending protocols during the recent bear market, one project, BendDAO, experienced a state of crisis after the interest rates on borrowed assets spiked, resulting in many users choosing to liquidate their NFTs instead of paying back the loans.