What the Future Holds for NFT Loans – Arguments for Quick Loans and Pool Loans

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@StaterStater

Stater is an NFT asset lending platform.

Look at the bigger picture

If we 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.

We could say that both niches serve different user needs and each niche is very different in the way collectors perceive the characteristics that give these assets value.

In gaming, for example, we have more use with these assets, while in art the assets are closely related to the brand that the artist created for himself. But even with use, we still have a lot of intrinsic value, which is derived from the buyer’s sole perception of the actual price, and scarcity plays a major role in both niches, which makes an objective evaluation even more difficult compared to fungible tokens.

If we look at the market in terms of adoption, we can immediately see that there will always be a great variety of asset types and a great influx of new projects bringing new ideas to market and testing, and there the barrier to entry is still gets lower, we can only estimate that the volume of new projects and ideas will increase in the future.

Let’s look at that context and see what role automation will play in NFT lending.

Lending with fungible vs. non-fungible assets

Crypto lending platforms have seen exponential growth over the past two years, and with the advent of DeFi in this space, we’ve seen the growth accelerate even further. Compared to the 2018 era when everyone was asking what the utility of this space would be in the future, we can now see that lending has played a vital role in creating real value in the market with products that actually have real acceptance and had attraction.

We think this is the case with NFTs too, and as the market grows the need for collectors to exploit their assets without selling them becomes natural and possibly even stronger when we consider intrinsic value.

However, there are some key differences when we compare loans with fungible and non-fungible assets:

  1. If we look at fungible asset lending, we can see that most platforms only work with a handful of assets that have high levels of liquidity. In the NFT space, this will be impossible as there will always be a wide range of projects and within each individual project the actual assets have a multitude of characteristics that make most of them unique.
  2. In the case of fungible lending, the valuation is carried out automatically by oracles with great precision and the price is determined objectively by the market. In the NFT area, this will be a major challenge, as the price for most projects is not determined by volume, but by scarcity, so the actual valuation is mostly subjective.
  3. In the case of fungible loans, liquidation occurs automatically when the loan price approaches the market price, causing the LTV ratio to rise to a certain threshold. With this mechanism, the lenders and the platform can never lose in the whole process. Even if, in the context of NFTs, we could have actual volume verification thresholds for the entire project or the class of assets associated with collateral value in the game, the market is always driven by scarcity, friction and downtime in the automatic liquidation scenario of the assets through the system to cover the loss to lenders.

With these factors in mind, we can already see that NFT lending poses some unique challenges when compared to “traditional” crypto lending using fungible tokens, but all is not lost.

At Stater, we believe this is an opportunity to rethink the way we can bring an amazing product to market that will reduce the dispersion and friction between lenders and borrowers.

Enable fast loans for NFT loans

One of the main disadvantages of a P2P marketplace is that it creates friction by design and it is difficult to match lenders and borrowers with the same goals and desires.

Our approach to this challenge is to have a P2P marketplace as a core product and, on top of that, to offer users the opportunity to get a quick loan that is granted by a loan pool only for certain assets that our system considers suitable become.

To make this happen we need to consider a few key factors that come with the project and the capital.

There has been some debate recently within the NFT community about the best way to value any asset, but we believe that the fact that you cannot objectively value an asset is what makes it special, and we do do not really need to know the “objective” value of the asset for pooled lending to work.

In order for pooled loans to work, we should subjectively evaluate the market value of each asset and only focus on those with a proven and trustworthy trading history of projects or artists who have a positive track record and use the LTV ratio and the interest rate as the main tools that would help us that Mitigate overall credit risk.

In this context, we would need to focus more on valuing the actual project than the asset to ensure that the credit pool is not at loss in the event of a loan default.

By creating a good LTV ratio and a good interest rate balance based on actual gaming risk, we can also ensure that we only have to sell a small percentage of the total defaulting assets in our custody to break even.

Metrics such as volume and growth for the specific project, asset price range / average asset, and other metrics related to the overall due diligence process are essential to provide quick credit with credit pools.

Finally

At Stater, we believe that NFTs will persist and allow users to leverage their assets without selling them will bring a new wave of innovation in this area.

As we near the mainnet launch, we are preparing to roll out new upgrades to our core product and make fast credit and pool credit a reality for our users.

Thanks for reading and stay tuned for more updates! Don’t forget to keep in touch, check out our website and follow us on Twitter, Telegram and discord.

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