As you know, the NFT market has blown up with billions of dollars in NFTs being traded on OpenSea, Rarible and LooksRare marketplaces. Massive value is currently locked in these highly-valued JPEGs waiting to be put to work.
OpenSky Finance is a decentralized peer-to-pool pawnshop where NFT HODLers can easily borrow using their NFT assets as collateral and DeFi users can earn safe passive income.
The Old Way: Peer-to-Peer Lending
Some protocols are using the inefficient peer-to-peer method to match lenders directly with borrowers so that the two parties take the opposite sides of a specific loan. Peer-to-peer does have benefits such as offering higher interest rates for lenders and lower rates for borrowers and it doesn’t require the collateral to be priced with oracles. However, this lending method is inefficient because the borrowers have to first request loan proposals and then wait and see if any acceptable offers are made. On the lender side, a certain level of NFT expertise is required because large loans are sometimes extended on multi-million dollar NFTs.
The New Way: Peer-to-Pool Lending
In OpenSky’s innovative peer-to-pool lending model, lenders supply crypto assets to a pool and borrowers borrow these tokens from that same pool using their whitelisted NFTs. Instead of each party interacting directly with the other, they interact via the common NFT lending market.
These smart contract-enabled pools algorithmically determine the variable interest rates based on supply and demand. And, once there is adequate value locked in the pool, the borrowers can borrow instantly by staking their NFT and agreeing to the loan terms.
Two NFT Lending Market Types
OpenSky Finance will offer two NFT lending markets built in a DeFi Money Legos-style on top of world-class money markets, like AAVE or Compound.
OpenSky primary lending markets will feature whitelisted Collection lending markets (e.g. BAYC Collection) where NFT HODLers can stake their NFTs and instantly borrow up to 50% of the floor price on-demand.
For high-value NFTs, (e.g. Alien Punk) that trade for far more than the floor price, OpenSky will enable Bespoke lending markets that can be created by the NFT HODLer to borrow much larger sums than what’s on offer in the Collection lending market.
DeFi users can deposit any amount of crypto into their choice of Collection lending markets and/or Bespoke lending markets.
The deposits will be passed through directly to AAVE or Compound and held securely in their battle-tested smart contracts. As a result, OpenSky lenders can earn safe passive income from AAVE and interest from the NFT loans.
The NFT HODLer can stake their NFT and immediately borrow up to 50% of the floor price at an algorithmically-determined variable interest rate for a fixed maturity, such as 30 days.
Furthermore, if the NFT HODLer owns a very expensive NFT (e.g. Alien Punk), they can set up a Bespoke lending market and borrow up to half of the TVL on-demand at a fixed interest rate for a fixed maturity.
How Liquidation Works?
When the loan is overdue, OpenSky will allow a grace period for the borrower to repay the loan and late fee. If the borrower still fails to repay, the lenders (and still the borrower) will have the right to pay off the late loan on a first-come, first-served basis and the first to repay will own the NFT.
If the borrower or lenders fail to repay the loan by a certain time, anyone can start a timed auction, or in the case of a Bespoke NFT market, anyone can fractionalize the NFT and the fractions will be shared proportionally to the lenders.
DeFi Money Legos Partnerships
OpenSky Finance is actively building its DeFi partnerships. For example, OpenSky recently received a Rarible DAO Grants to build key integrations that are beneficial to both parties. In terms of other protocols, OpenSea, AAVE, Compound, Fractional and The Graph are on OpenSky’s shortlist for strategic cooperation.
OpenSky has already launched the testnet product which we encourage you to try out and offer your feedback: https://test.app.opensky.finance/. The mainnet launch is expected in Q2 2022.
OpenSky Finance will serve as a real use case for NFT HODLers who want to borrow against their NFTs and DeFi users who want to earn safe income. Join us as we work hard to BUIDL the new Future of Finance at the intersection of NFTs and DeFi.
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