NFT lending As a financial infrastructure, lending has broad development space. The core mechanism of NFT lending is to use NFT as collateral to obtain loans. The most core element is risk control, which requires the market to have a consensus on the price of NFT. Since the current pricing and valuation projects are relatively early, risk control is mainly carried out from two aspects: project type (blue chip) and loan value ratio (Loan to Value). Like defi, lending is also a relatively early project type in NFTFI. Currently, NFT lending projects include: BendDAO, NFTfi, JPEGd, Pine Protocol, Arcade xyz, etc. At present, NFT lending can be mainly divided into two types: peer-to-peer and peer-to-pool.

a. The borrower places an order to show his needs, and then the lender browses all the borrowing needs on the platform, selects the intended order and negotiates the interest rate and term with the borrower to complete the loan.

b. When the loan is repaid as scheduled, the NFT is returned to the original owner; if it cannot be repaid, the NFT belongs to the other party.

Currently, NFTfi and Arcade xyz use a peer-to-peer mechanism.

a. After NFT holders pledge NFT, they can get a loan, which is similar to the logic of Aave and Compound in defi. Funds are borrowed through over-collateralization, and interest needs to be paid at the same time.

b. Borrowers inject currency to obtain interest.

Currently, BendDAO, JPEGd and Pine Protocol use a peer-to-peer mechanism.

Among them, JPEGd's design is similar to MakerDAO, which mints PUSD (over-collateralized stablecoin) by pledging NFT for circulation and use.

NFTfi's core mechanism and track analysis

Peer to peer lending:

a. Advantages: wider lending range, no need to rely on oracles.

b. Disadvantages: longer transaction cycle and low efficiency.

Peer-to-pool lending:

a. Advantages: high efficiency

b. Disadvantages: NFT rarity is underestimated; when the market is not good, lenders panic collectively, resulting in liquidity depletion, which can easily form a death loop.

For example, the bank run phenomenon of BendDAO in August, a large number of NFTs faced liquidation, and because the liquidation threshold was very close to the low price, no one was willing to buy. Users frantically withdrew liquidity, and ETH deposits once plummeted from 15,000 ETH to 12.5 ETH. Later, BendDAO urgently initiated a vote to shorten the auction time from 48 hours to 4 hours, and cancelled the first bid limit of 95% of the reserve price, and gradually began to recover.

From the data on Dune, we can see that in the current NFT lending market, NFTFi accounts for 58%, BendDAO accounts for 32%, and other types account for about 10%. In general, NFTFi and BendDAO, as the leaders of peer-to-peer and peer-to-pool, still occupy an absolute leading position.

In general, the development of NFT lending is closely related to the overall market of NFT on the one hand, and is also closely related to the development of pricing and valuation projects on the other hand. Since the development of pricing and valuation is still in its early stages, the current peer-to-peer project NFTfi is in a more leading position. However, with the development of various oracles, peer-to-pool also has a lot of room for growth. But overall, due to the large price fluctuations and difficult pricing, the market still accounts for a small proportion of NFT lending. If NFT lending wants to develop rapidly, it is basically strongly bound to NFT pricing and valuation.

1. NFT derivatives NFT financial derivatives are mainly divided into two categories: option contracts and prediction markets.

a. Option contracts: Similar to traditional options, the option issuer creates the right to buy or sell NFTs at a certain strike price at a certain time and charges option fees. The buyer of the option pays the premium to buy or sell NFTs at the strike price before the agreed date. Projects include: Nifty Option, Putty, Hook, OpenLand, etc.

i. At the same time, perpetual contract projects have also been derived. Similar to FT perpetual contracts, there is no fixed delivery date. The contract price and spot price are anchored by funding fees. When the futures price is higher than the spot price by a certain value, the long party pays the short party (or the long party's handling fee increases and the short party's handling fee decreases); conversely, the short party pays the long party. Projects include: NFTperp, injective.

b. Prediction market: a new way of playing, prediction and betting through mint, secondary and rental of NFT. For example, in this Qatar World Cup, if you think the German team will win, you can mint/secondary purchase/rent the German team NFT, and finally distribute the bonus according to the winning situation or holding time of the NFT. For example, Reality Cards, the bonus is distributed by holding the corresponding NFT for a certain period of time; and like OKX, it is distributed according to the winning situation of each game in the World Cup and the proportion of NFT in the bonus pool.

Derivatives are relatively mature in the traditional financial market. Currently, the gameplay of NFT is basically just changing the underlying assets, and there is no new breakthrough. At present, NFT derivatives are still in a very early stage. NFTperp is still in the test network stage, and the transaction volume of putty is also in the double digits. All types of projects are in the early stages. It is difficult to have explosive growth before the NFT liquidity and deposit valuation system are improved. Projects like prediction markets are fresh gameplay and new models brought by NFT. If you make good use of major events such as the World Cup and the Olympics, there will be some innovative imagination space in the future.

1. Fragmentation Due to the non-homogeneous properties of NFT, it cannot be divided like FT, which leads to limited natural liquidity. Fragmentation converts NFT into multiple FTs by dividing ownership. Thereby improving liquidity. It is a bit like splitting a high-denomination stock into multiple shares, so that buyers can buy part of the stock. Representative projects in the NFT fragmentation track include Fractional.art and Unic.ly

After NFT is fragmented, more gameplay can be activated in Defi through FT, such as trading in uniswap, lending in aave, etc. Similarly, users can also buy out NFT.

Take the fragmentation head project Fractional.art as an example. Once more than 50% of the token holdings start to set the auction reserve price, the NFT enters the auction stage and the highest bidder wins; when the auction stage is not opened, users can buy out NFT at a price not lower than the reserve price.

Highlights:

1. As a method to improve liquidity, it can bring higher capital efficiency (lending, liquidity mining, etc.)

2. Lower the threshold for participation

3. Increase higher exposure

Dilemmas:

1. Only applicable to high-value NFTs

2. There is still the long-standing problem of pricing

3. Fragmented FTs will also face liquidity problems

4. How to distribute various rights and interests such as airdrops after fragmentation also needs to be solved

As a leading player in fragmentation, Fractional.art has a great impact on the future development of this segmented track. The above figure shows the daily transaction volume and daily fund addition of fractional. From the perspective of transaction volume, the project was extremely popular in the early stage, but it continued to cool down after 22 years; the daily fund addition began to have new ups and downs in 22 years, which shows that the demands of NFT fund creators are still there, but with the cooling of the web3 environment and NFT, as well as issues such as pricing, rights, and FT liquidity, the transaction volume has not produced new fluctuations. In general, since the fragmentation project is only applicable to high-value NFTs, it will be closely related to the market heat of NFT blue-chip projects. As a prominent liquidity provider, Fractional.art may flourish again when the next NFT blue-chip boom begins.

NFT lending As a financial infrastructure, lending has broad development space. The core mechanism of NFT lending is to use NFT as collateral to obtain loans. The most core element is risk control, which requires the market to have a consensus on the price of NFT. Since the current pricing and valuation projects are relatively early, risk control is mainly carried out from two aspects: project type (blue chip) and loan value ratio (Loan to Value). Like defi, lending is also a relatively early project type in NFTFI. Currently, NFT lending projects include: BendDAO, NFTfi, JPEGd, Pine Protocol, Arcade xyz, etc. At present, NFT lending can be mainly divided into two types: peer-to-peer and peer-to-pool.

a. The borrower places an order to show his needs, and then the lender browses all the borrowing needs on the platform, selects the intended order and negotiates the interest rate and term with the borrower to complete the loan.

b. When the loan is repaid as scheduled, the NFT is returned to the original owner; if it cannot be repaid, the NFT belongs to the other party.

Currently, NFTfi and Arcade xyz use a peer-to-peer mechanism.

a. After NFT holders pledge NFT, they can get a loan, which is similar to the logic of Aave and Compound in defi. Funds are borrowed through over-collateralization, and interest needs to be paid at the same time.

b. Borrowers inject currency to obtain interest.

Currently, BendDAO, JPEGd and Pine Protocol use a peer-to-peer mechanism.

Among them, JPEGd's design is similar to MakerDAO, which mints PUSD (over-collateralized stablecoin) by pledging NFT for circulation and use.

NFTfi's core mechanism and track analysis

Peer to peer lending:

a. Advantages: wider lending range, no need to rely on oracles.

b. Disadvantages: longer transaction cycle and low efficiency.

Peer-to-pool lending:

a. Advantages: high efficiency

b. Disadvantages: NFT rarity is underestimated; when the market is not good, lenders panic collectively, resulting in liquidity depletion, which can easily form a death loop.

For example, the bank run phenomenon of BendDAO in August, a large number of NFTs faced liquidation, and because the liquidation threshold was very close to the low price, no one was willing to buy. Users frantically withdrew liquidity, and ETH deposits once plummeted from 15,000 ETH to 12.5 ETH. Later, BendDAO urgently initiated a vote to shorten the auction time from 48 hours to 4 hours, and cancelled the first bid limit of 95% of the reserve price, and gradually began to recover.

From the data on Dune, we can see that in the current NFT lending market, NFTFi accounts for 58%, BendDAO accounts for 32%, and other types account for about 10%. In general, NFTFi and BendDAO, as the leaders of peer-to-peer and peer-to-pool, still occupy an absolute leading position.

In general, the development of NFT lending is closely related to the overall market of NFT on the one hand, and is also closely related to the development of pricing and valuation projects on the other hand. Since the development of pricing and valuation is still in its early stages, the current peer-to-peer project NFTfi is in a more leading position. However, with the development of various oracles, peer-to-pool also has a lot of room for growth. But overall, due to the large price fluctuations and difficult pricing, the market still accounts for a small proportion of NFT lending. If NFT lending wants to develop rapidly, it is basically strongly bound to NFT pricing and valuation.

1. NFT derivatives NFT financial derivatives are mainly divided into two categories: option contracts and prediction markets.

a. Option contracts: Similar to traditional options, the option issuer creates the right to buy or sell NFTs at a certain strike price at a certain time and charges option fees. The buyer of the option pays the premium to buy or sell NFTs at the strike price before the agreed date. Projects include: Nifty Option, Putty, Hook, OpenLand, etc.

i. At the same time, perpetual contract projects have also been derived. Similar to FT perpetual contracts, there is no fixed delivery date. The contract price and spot price are anchored by funding fees. When the futures price is higher than the spot price by a certain value, the long party pays the short party (or the long party's handling fee increases and the short party's handling fee decreases); conversely, the short party pays the long party. Projects include: NFTperp, injective.

b. Prediction market: a new way of playing, prediction and betting through mint, secondary and rental of NFT. For example, in this Qatar World Cup, if you think the German team will win, you can mint/secondary purchase/rent the German team NFT, and finally distribute the bonus according to the winning situation or holding time of the NFT. For example, Reality Cards, the bonus is distributed by holding the corresponding NFT for a certain period of time; and like OKX, it is distributed according to the winning situation of each game in the World Cup and the proportion of NFT in the bonus pool.

Derivatives are relatively mature in the traditional financial market. Currently, the gameplay of NFT is basically just changing the underlying assets, and there is no new breakthrough. At present, NFT derivatives are still in a very early stage. NFTperp is still in the test network stage, and the transaction volume of putty is also in the double digits. All types of projects are in the early stages. It is difficult to have explosive growth before the NFT liquidity and deposit valuation system are improved. Projects like prediction markets are fresh gameplay and new models brought by NFT. If you make good use of major events such as the World Cup and the Olympics, there will be some innovative imagination space in the future.

1. Fragmentation Due to the non-homogeneous properties of NFT, it cannot be divided like FT, which leads to limited natural liquidity. Fragmentation converts NFT into multiple FTs by dividing ownership. Thereby improving liquidity. It is a bit like splitting a high-denomination stock into multiple shares, so that buyers can buy part of the stock. Representative projects in the NFT fragmentation track include Fractional.art and Unic.ly

After NFT is fragmented, more gameplay can be activated in Defi through FT, such as trading in uniswap, lending in aave, etc. Similarly, users can also buy out NFT.

Take the fragmentation head project Fractional.art as an example. Once more than 50% of the token holdings start to set the auction reserve price, the NFT enters the auction stage and the highest bidder wins; when the auction stage is not opened, users can buy out NFT at a price not lower than the reserve price.

Highlights:

1. As a method to improve liquidity, it can bring higher capital efficiency (lending, liquidity mining, etc.)

2. Lower the threshold for participation

3. Increase higher exposure

Dilemmas:

1. Only applicable to high-value NFTs

2. There is still the long-standing problem of pricing

3. Fragmented FTs will also face liquidity problems

4. How to distribute various rights and interests such as airdrops after fragmentation also needs to be solved

As a leading player in fragmentation, Fractional.art has a great impact on the future development of this segmented track. The above figure shows the daily transaction volume and daily fund addition of fractional. From the perspective of transaction volume, the project was extremely popular in the early stage, but it continued to cool down after 22 years; the daily fund addition began to have new ups and downs in 22 years, which shows that the demands of NFT fund creators are still there, but with the cooling of the web3 environment and NFT, as well as issues such as pricing, rights, and FT liquidity, the transaction volume has not produced new fluctuations. In general, since the fragmentation project is only applicable to high-value NFTs, it will be closely related to the market heat of NFT blue-chip projects. As a prominent liquidity provider, Fractional.art may flourish again when the next NFT blue-chip boom begins.