NFT Loans

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Lender Guide ​

This guide explains how to earn yield by lending ETH against NFT collateral.

How Lending Works ​

  1. You provide ETH
  2. A borrower puts up NFT collateral
  3. They pay you back with interest
  4. If they don't repay, you get their NFT

It's P2P lending with NFT collateral—you set your own terms and choose which loans to fund.

Understanding Risk ​

Safe Guard Mode Loans (Lower Risk) ​

  • NFT is hard-locked in borrower's Safe wallet
  • They literally cannot transfer it (Guard blocks all transfers)
  • On default, Module executes transfer to you
  • 24-hour activation delay catches setup issues
  • Risk: Smart contract bugs, Safe vulnerabilities

Deposit Mode Loans (Higher Risk) ​

  • NFT stays in borrower's wallet with an approval
  • 20% deposit provides economic security
  • Borrower COULD cheat (transfer NFT, revoke approval)
  • If cheating detected, deposit is slashed to you
  • Risk: Borrower cheats before anyone notices, contract bugs

Pricing Risk ​

Consider these when setting interest rates:

  • Mode: Safe Guard = lower risk = lower rate needed
  • LTV: Higher LTV = more risk = higher rate
  • Duration: Longer duration = more risk = higher rate
  • NFT liquidity: Popular collections = easier to sell if liquidated
  • Floor price volatility: Volatile floors = higher liquidation risk

Option A: Create a Loan Offer ​

Post your terms and wait for borrowers to accept.

Step 1: Set Your Terms ​

  • Principal: How much ETH you'll lend (this gets escrowed)
  • Interest Rate: APR in basis points (1000 = 10%)
  • Duration: Loan duration (e.g., 30 days)
  • Accepted Mode: Safe Guard only, Deposit only, or both
  • NFT Requirements (optional):
    • Specific collection
    • Token ID range

Step 2: Create the Offer ​

  1. Review your terms
  2. Submit transaction WITH the principal amount
  3. Your ETH is escrowed in the contract
  4. Offer is now visible to borrowers

Your ETH is locked until:

  • A borrower accepts (loan starts)
  • You cancel the offer (ETH returned)

Step 3: Wait for Acceptance ​

  • Borrowers browse offers
  • When one accepts, the loan begins automatically
  • Safe Guard: You wait 24hr for activation, then interest starts
  • Deposit: Loan starts immediately

Option B: Fund a Loan Request ​

Browse existing requests from borrowers and fund ones you like.

Step 1: Browse Requests ​

Filter by:

  • Principal amount
  • Collateral (NFT collection, specific token)
  • Interest rate offered
  • Duration
  • Collateral mode

Step 2: Evaluate the Request ​

Check:

  • The NFT: Is it from a collection you trust? Check floor prices.
  • LTV: Principal vs NFT floor. Lower is safer.
  • Interest rate: Is it worth the risk?
  • Borrower history: (if available) Have they repaid before?
  • Mode: Safe Guard is lower risk than Deposit

Step 3: Fund the Request ​

  1. Click "Fund"
  2. Send the principal amount
  3. Loan is created

Safe Guard loans:

  • Loan enters "Pending Activation" status
  • 24-hour waiting period
  • After activation, borrower receives ETH
  • If issues detected during waiting, loan can be cancelled (your ETH returned)

Deposit loans:

  • Loan is immediately active
  • Borrower receives ETH
  • Their deposit is held as security

During the Loan ​

Monitor Your Loans ​

  • Check loan status (Active, Pending, etc.)
  • Note maturity dates
  • Watch for cheating reports (Deposit mode)

Interest Accrues ​

Interest accrues linearly from loan start to repayment/default.

Your Return = Principal + Interest - Platform Fee
Platform Fee = 2.5% of interest

What to Watch For (Deposit Mode) ​

If a borrower cheats, you want it reported quickly:

  • Borrower transfers NFT away
  • Borrower revokes approval

Anyone can call reportCheating and you'll receive the slashed deposit. The protocol doesn't have automated monitoring (yet), so community vigilance helps.

Loan Outcomes ​

Outcome 1: Borrower Repays (Best Case) ​

  • You receive principal + interest (minus 2.5% platform fee)
  • Collateral is released back to borrower
  • Easy profit!

Outcome 2: Borrower Defaults (You Get NFT) ​

After maturity + 24hr grace period:

  1. Anyone can call liquidate(loanId)
  2. NFT transfers to you
  3. Deposit mode: You also get the 20% deposit
  4. You now own the NFT (sell it or keep it)

Note: You get the NFT, not your ETH back. If the NFT floor dropped below your principal, you may have a loss.

Outcome 3: Borrower Cheats (Deposit Mode Only) ​

If cheating is detected and reported:

  1. Loan is marked as liquidated
  2. You receive the 20% deposit
  3. You do NOT get the NFT (it's gone)
  4. You're out the principal minus the deposit

This is why Deposit mode has higher rates—you're taking the risk that the borrower might cheat.

Cancelling an Offer ​

If your offer hasn't been accepted:

  1. Go to your active offers
  2. Click "Cancel"
  3. Confirm the transaction
  4. Your escrowed ETH is returned

You cannot cancel after a borrower accepts.

Liquidating Defaulted Loans ​

After maturity + 24hr grace period, anyone can liquidate. You don't have to do it yourself, but you can:

  1. Go to the loan
  2. Click "Liquidate"
  3. Confirm the transaction
  4. NFT transfers to you

If someone else liquidates, you still get the NFT—there's no "liquidator bonus" currently.

Risk Management Tips ​

Diversify ​

Don't put all your ETH into one loan. Spread across multiple loans.

Start Small ​

Fund small loans first to learn the system.

Prefer Safe Guard ​

Lower returns, but much lower risk. The NFT is genuinely locked.

Evaluate LTV Carefully ​

If floor drops 50% and you lent at 50% LTV, you might not want to liquidate.

Know the Collection ​

Only lend against NFTs you understand and could sell.

Set Appropriate Rates ​

  • Safe Guard: 5-15% APR is reasonable
  • Deposit: 15-30% APR compensates for cheating risk

Monitor Deposit Mode Loans ​

Be aware of your Deposit mode loans. If you see suspicious activity, report it.

Tax Considerations ​

Consult a tax professional. Generally:

  • Interest received is income
  • If you receive an NFT through liquidation, that's a taxable event
  • Selling the NFT is another taxable event

Keep records of all transactions.

Example Scenarios ​

Example 1: Safe Guard Loan, Repaid ​

  • You lend 1 ETH at 10% APR for 30 days
  • Borrower repays after 30 days
  • You receive: 1 ETH + 0.0082 ETH interest - 0.0002 ETH fee = 1.008 ETH
  • Profit: 0.008 ETH (0.8%)

Example 2: Deposit Loan, Borrower Defaults ​

  • You lend 1 ETH at 20% APR for 30 days
  • Borrower doesn't repay
  • You liquidate after grace period
  • You receive: The NFT (worth ~2 ETH floor) + 0.2 ETH deposit
  • You sell NFT for 1.8 ETH (below floor due to market)
  • Net: 2 ETH - 1 ETH principal = 1 ETH profit

Example 3: Deposit Loan, Borrower Cheats ​

  • You lend 1 ETH at 20% APR
  • Borrower transfers NFT away
  • Cheating reported immediately
  • You receive: 0.2 ETH deposit
  • Net: 0.2 ETH - 1 ETH = -0.8 ETH loss

This is the risk of Deposit mode. Price it accordingly.

Next Steps ​

Built for the 6529 community

NFT Loans