NFT Mortgages on Drops: Finance Your JPEGs
Drops DAO is the gateway to metaverse financing where users can leverage their NFTs as collateral to receive instant, permissionless loans. Since the launch of our mainnet, we’ve seen an influx of collateralized NFTs from blue-chip token holders across the board.
But things aren’t just stopping there. Our team is already moving forward with the implementation of our next innovative product that’s set to make shockwaves in the space: NFT mortgages.
Learn more about how this product will work and what it means for our community.
What are NFT Mortgages?
NFT mortgages will be a feature built on top of our NFT lending pools where users will be able to purchase blue-chip NFTs for up to 50% of their underlying value — the remaining 50% will become financed by the lending pool.
Drops users will soon have a decentralized and permissionless way to purchase NFTs directly on our platform, boosting activity within our ecosystem. NFTs can be acquired without paying the full value, meaning you need to deploy less capital upfront.
Our lending pools will also support subfloor NFT valuations that will price NFTs based on metadata.
This is an important advancement in the metaverse realm, presenting a brand new way to get instant access to capital via financing. We believe this will be a major catalyst in opening the door for more potential NFT holders to enter the space.
How it Works: The Basics
Here’s a breakdown of how NFT mortgages will work on Drops:
- A user selects the NFT they want to purchase (any NFT with liquidity is eligible for a mortgage)
- The loan amount you can obtain depends on the asset’s LTV — you can take out up to 60% of the NFTs value for up to a 40% downpayment
- The higher the amount you pay down your loan, the lower your risk of liquidation will be
- Payments come with no duration or timelines — the loan will remain solvent as long as the user doesn’t exceed their liquidation threshold
- If a user exceeds this threshold, their NFT will be liquidated and will either be released on the open market for a discount or be placed up for auction
- All rules and interest rates apply, as this feature is built on top of Drops lending pools
Key Mechanics: Under the Hood
Below is a quick explanation of how this technology works behind the scenes:
- A proxy contract is created between the user and lending pool once an NFT mortgage transaction is initiated, which deposits the mortgaged NFT into the Drops lending pool
- The proxy contract owns the NFT and the user owns the proxy contract (the proxy contract is the middleman)
- Users receive the NFT asset and can begin paying down the debt
- NFT mortgages can be sold/transferred to other users — the new owner would own the proxy contract
All NFTs will be able to be sold on external marketplaces (i.e. OpenSea or LooksRare) as a regular asset and will come equipped with a proxy contract if the debt remains to be paid off.
Benefits & Limitations
It’s important to note the potential benefits and limitations of utilizing your NFT assets when taking out a mortgage on Drops.
One of the key benefits is that users can purchase NFTs for less upfront capital, allowing them to speculate if they plan to use them as investment vehicles (larger overall leverage). In addition, these NFTs are also eligible to receive airdrops.
However, the NFTs you acquire through mortgages are locked within a contract (more details below) so you don’t physically own or hold the NFT within your wallet until the loan is fully paid off. Therefore, you can’t use mortgaged NFTs for features like ticketing, exclusive Discord member access, or other activities requiring a wallet signature.
To roll out NFT mortgages and ensure a successful launch, we’ve developed a multi-phase approach for the remainder of 2022:
The testnet demo has also been completed✅ — https://rinkeby.etherscan.io/tx/0x5a1a0a9ee92d9139abade373d18829d8950eef2b0d172b2bc28d76e3cc5663b5
Excited yet? We’re just getting started.
Drops is helping bring accessibility for NFTs to the masses. NFT mortgages are yet another vehicle to help us on our mission to do so.
Join the movement and get your groove on with Drops! Stay tuned for more updates on our socials.
About Drops DAO
Drops DAO provides loans for NFT and DeFi assets, supplying them with much-needed utility.
The protocol uses lending pools that enable any type of NFT asset to be used as collateral — from collectibles and metaverse items to financial NFTs. Users can leverage their idle NFTs and DeFi tokens to obtain loans and earn extra yield.