NFT Lending

NFT Lending

Solana NFT Lending

The lending markets for Solana NFTs are currently offering high yields on SOL.

Here’s a breakdown of how lending platform sharky.fi works:

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Someone who needs to borrow SOL posts their NFT as collateral. Let’s say they want to borrow against their DeGods NFT.

As a lender, you can offer to loan them, say 375 SOL. The loan period is 14 days, meaning the borrower has 14 days to pay you back the 375 SOL + interest, or else you get to keep their DeGod.

At a current floor of 550 SOL, if they default on the loan, you win as a lender as you can turn around and sell the DeGod for a 175 SOL profit after only 14 days (assuming the floor remains at 550 SOL).

At current rates, borrowers are wiling to pay roughly 12.81 SOL to borrow 375 SOL against their DeGod.

This is 3.4% interest in only 14 days, which is an annualized rate of close to 100%.

A couple of risks:

Let’s say the DeGods floor plummets to 200 SOL in the 14 day loan period.

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The borrower will obviously just default on the loan and keep the 375 SOL, and you’ll be stuck with a DeGods worth 200 SOL.

As best practice, lenders should only lend to collections that they are bullish on and wouldn’t mind bag-holding if there was a large crash.

Another risk to take into account is the exposure to SOL/USD price. You may earn 3.4% interest in 14 days, but if SOL price drops more than 3.4% in that 14 day period, you came out behind.

Lastly, this is a defi protocol that could get hacked lose funds or somehow get stuck with a fake NFT (hackers were able to list fake y00ts within the verified collection on MagicEden for a brief period of time).

Another opportunity here is to arbitrage the lending rates of different collections.

For example, you could borrow 375 SOL against your DeGod for 14 days for a total price of 12.81 SOL.

Meanwhile, you could lend out the 375 SOL you borrowed to y00ts, who are willing to pay a higher interest rate:

Offering 3 loans of 125 SOL each would yield 8.91 SOL on a 7 day term. After 7 days, if you made this loan again you could yield 17.82 SOL on the 375 SOL you borrowed over the course of 14 days.

You paid 12.81 SOL for the DeGod loan, and earned 17.82 SOL on the y00t loan, netting 5.01 SOL.

You could have staked that DeGod for 3.75 DUST per day for 14 days to earn:

3.75 x 14 * $0.75 = $40

By arbitraging NFT laons you made 5.01 SOL, or ~$82 at current SOL prices.

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That $82 could be used to purchase ~110 DUST vs the 52.5 DUST you would have earned staking the DeGod.

Why are people willing to pay such high interest for a SOL loan? They may need capital badly and don’t want to sell their NFT.

More likely though is the scenario where the borrow is extremely bullish on the NFT collection’s floor price and want to leverage up. Let’s say you have 5 DeGods worth 550 SOL each.

But you think the floor price is going to go to 700 SOL each within the next two weeks.

You could borrow 375 SOL x 5 = 1875 SOL.

That 1875 SOL loan gives you the ability to buy 3 more DeGods. If you’re right and the floor goes to 700 SOL, you can turn around and sell the 3 new DeGods for 700 SOL each (2100 SOL) and pay back the loan + 63.75 SOL in interest for a total profit of 386.25 SOL. (150 SOL profit per DeGod minus the 63.75 SOL interest.)

These loans are essentially enabling leveraged trading of NFTs.

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This is far from a risk free strategy. There are risks to both borrowers and lenders.