When dealing with NFT loans, there is a possibility that the loans may become "underwater," meaning that the loan amount exceeds the floor price of the NFT. To minimize these risks, we have implemented several measures:
- 1.Utilizing Lenderlabs analytics: We make use of the analytics provided by Lenderlabs to identify NFTs that are less likely to go underwater. This helps us select NFTs that have a higher chance of maintaining their value.
- 2.Loan-to-Value (LTV) percentage: We set a maximum LTV percentage, ensuring that we do not lend beyond a certain proportion of the NFT's value. This mitigates the risk of lending too much compared to the NFT's actual worth.
- 3.Loaning to established projects: We only provide loans to projects that are well-established and have matured in the NFT space. This increases the likelihood of repayment and reduces the risk of default.
In the event that underwater loans do occur, we have a plan in place to manage the situation:
- 1.Adjusting revenue share: If a loan becomes underwater, we will temporarily reduce the revenue share until the wallet balance reaches a sustainable level. This approach is essential to ensure the long-term viability of the project and maintain a sustainable revenue sharing model.
- 2.Selling NFTs below floor price: Depending on the extent to which NFTs fall below their floor price, we may consider selling them on an Automated Market Maker (AMM) or offer them to our community at a discounted price. This allows us to quickly generate liquidity if we have a significant number of these NFTs. Once this liquidity is achieved, we can assess the gap between the desired revenue share threshold and the current situation.
- 3.Voting on decisions: All decisions related to risk mitigation, including revenue adjustments and selling NFTs, are subject to voting. This ensures that the community has a voice and can participate in shaping the project's direction.
By implementing these risk mitigation strategies and involving the community in decision-making, we aim to reduce the likelihood of underwater loans and maintain a sustainable and successful NFT loan project.