How Does NFT Borrowing Work?
Borrow anytime, anywhere
OpenSky offers transparent and efficient on-chain financing to any NFT staker anywhere, anytime. Borrowers can leverage their NFT assets and borrow from lending pools propelled by groundbreaking bonding curve technology . OpenSky is a DeFi, peer-to-smart contract (P2C) protocol operating in a completely trustless and permissionless environment. The NFT users can reclaim their staked NFT asset anytime after making their full loan repayment. During times of heightened market volatility, the user can make partial repayment of the loan, returning the OpenSky NFT market to a healthy state and prevent undesired loss of ownership of the staked NFT.
How much can be borrowed?
Each NFT market will have a predetermined collateral factor (0-100%) which will be multiplied by the total value locked (TVL) of the reserve tokens. We call this the loan limit which simply represents the on-demand credit available to the NFT staker. The interest rate payable by the NFT staker will be algorithmically calculated by the smart contract based on the relative supply and demand of loanable funds.
The maximum amount that can be borrowed is dependent on the aggregate buying and selling of the OpenSky ecosystem LPs. The NFT staker's loan limit is calculated based on the total market value of the bonding curve or, in other words, the market capitalization of the reserve tokens locked in the smart contract. As the market fluctuates, so does the borrower's credit limit.The formula for the maximum amount that can be borrowed is as follows:
Blimit = TVL (total value locked) * # RTVL * # Rborrow,
i.e, the more TVL and the higher the collateral factor, the more of the reserve token, such as ETH or USDT, can be borrowed on demand.
When the NFT staker decides to borrow on-demand, the following three outcomes are possible.
  1. 1.
    The NFT staker can use the borrowed funds indefinitely as long as the interest is paid according to the smart contract terms. In this case, LPs will continue to earn trading fees and interest in perpetuity.
  2. 2.
    NFT staker can pay back the outstanding principal and interest at any time and the smart contract will automatically unlock the NFT asset and send it to the NFT staker’s wallet address. All existing NFT tokens will be burned and the appropriate value of reserve tokens will be sent back to the LPs' wallets. At this point, the liquidity pool will be successfully terminated.
  3. 3.
    The NFT price drops below the liquidation level triggering a margin call and temporarily places the market into an ‘unhealthy’ condition. At this point, the NFT staker can add a sufficient amount of reserve tokens to the market to restore it to a ‘healthy’ state and retain ownership of the staked NFT. However, if a liquidator pays off the loan in full before the NFT staker remits the required amount of reserve tokens, the NFT staker will lose the staked NFT to the liquidator. Therefore, the NFT staker must monitor the situation closely when the price is near the liquidation level. Liquidators, who can be anyone including the existing LPs, stand ready to pay back the loan to restore the ‘health’ of the market when the NFT price has declined below the loan limit level and triggered a margin call. The liquidator will gain control of the staked NFT if he pays off the non-performing loan on a first come-first served basis. At this point, the NFT will be unlocked from the smart contract and sent to the liquidator's wallet and the market will terminate.
How to borrow?
OpenSky offers NFT stakers the most capital-efficient option in decentralized lending. They simply need to deposit their asset into the OpenSky Market which opens up a token exchange through an NFT minting process, earns them trading fees and ultimately increases the value of their digital asset. Furthermore, NFT stakers can borrow from the liquidity pool and attempt to leverage gains on external trading platforms, including pursuing yield farming strategies. To complete the "deposit" the NFT holder simply needs to transfer the NFT from his/her wallet to the OpenSky contract address and bootstrap the liquidity pool market creation.
Last modified 5mo ago
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