Detailed Instructions

Begin by evaluating the collateral asset. This is the primary risk factor for the lender and determines the loan's safety. Focus on the NFT's floor price, trading volume, and collection rarity.

• Sub-step 1: Verify Provenance and Authenticity: Check the NFT's on-chain history using a block explorer like Etherscan. Confirm the contract address matches the official collection and there are no suspicious transfers.
• Sub-step 2: Analyze Market Liquidity: Examine 30-day trading volume on major marketplaces (Blur, OpenSea). A high-volume collection is easier to liquidate if needed.
• Sub-step 3: Determine a Conservative Valuation: Use a tool like NFTBank or Icy.tools to assess the asset's price percentile and set a loan-to-value (LTV) ratio. A common safe LTV for a blue-chip NFT is 30-40% of its floor price.

javascriptCopy
// Example: Fetching floor price via an API (pseudo-code)
const collectionSlug = 'boredapeyachtclub';
const response = await fetch(`https://api.opensea.io/api/v1/collection/${collectionSlug}/stats`);
const data = await response.json();
const floorPrice = data.stats.floor_price;
console.log(`Current Floor Price: ${floorPrice} ETH`);

Tip: For P2P loans, the borrower's specific NFT traits matter more. For pool-based loans, the system's overall collection whitelist and oracle pricing model are critical.

Detailed Instructions

Examine the loan terms which define the cost and risk structure. Key variables are the annual percentage rate (APR), loan duration, and liquidation threshold.

• Sub-step 1: Calculate the Total Cost of Borrowing: For a 30 ETH loan at 12% APR over 90 days, the interest is 30 * 0.12 * (90/365) = ~0.887 ETH. Factor in any platform origination fees.
• Sub-step 2: Understand the Grace Period and Liquidation Process: Determine the liquidation LTV (e.g., 80%). If the NFT's value drops and the LTV exceeds this, the loan enters a grace period (e.g., 72 hours) before auction.
• Sub-step 3: Review Loan Extensions and Repayment Flexibility: Check if the platform allows partial repayments or term extensions, and at what cost. Pool-based protocols often have fixed terms, while P2P can be negotiated.

solidityCopy
// Simplified view of a liquidation check in a smart contract
function checkLiquidation(uint256 loanId, uint256 currentNFTValue) public view returns (bool) {
    Loan memory loan = loans[loanId];
    uint256 ltv = (loan.principal * 1e18) / currentNFTValue; // LTV in basis points
    return ltv > LIQUIDATION_THRESHOLD; // e.g., 8000 for 80%
}

Tip: In pool-based systems, also check the pool's health factor and reserve ratio to gauge systemic risk of your loan being under-collateralized.

Detailed Instructions

Determine where the primary risk lies: with an individual (P2P) or a protocol's smart contracts and treasury (pool-based).

• Sub-step 1: For P2P Loans, Vet the Borrower: Check the borrower's on-chain reputation. Look at their wallet history for successful repayments, NFT holdings, and absence of scam associations. A high ENS name age or DeBank score can be positive signals.
• Sub-step 2: For Pool-Based Loans, Audit the Protocol: Review the protocol's audit reports from firms like OpenZeppelin or Trail of Bits. Check for a bug bounty program and the time-lock status of admin contracts.
• Sub-step 3: Analyze Oracle Security: The loan's health depends on accurate NFT pricing. Identify the oracle used (e.g., Chainlink, internal TWAP) and its update frequency and manipulation resistance. A delay of several hours can be risky in volatile markets.

Tip: Use DeFiLlama or DefiSafety to check a protocol's TVL history, audit count, and team doxxing status. A sudden drop in TVL can indicate user exodus.

Detailed Instructions

Perform a scenario analysis to understand potential outcomes. This involves modeling price drops, interest rate changes, and liquidity events.

• Sub-step 1: Calculate the Breakeven NFT Price: Determine the NFT price at which you risk liquidation. For a 10 ETH loan at 50% LTV, the collateral is valued at 20 ETH. At an 80% liquidation LTV, the price trigger is 10 / 0.8 = 12.5 ETH. The asset can drop 37.5% before liquidation.
• Sub-step 2: Simulate a Market Downturn: Use historical data to see how the collection performed during periods like May 2022 or the FTX collapse. If floor prices dropped >50%, a 40% LTV loan could still be safe.
• Sub-step 3: Plan for Liquidation or Refinancing: Understand the platform's liquidation penalty (often 5-15%) and auction mechanics. Have a plan to repay or refinance on another platform if your NFT's value declines sharply.

pythonCopy
# Simple Python script to model liquidation price
loan_amount_eth = 15
initial_ltv = 0.33  # 33%
liquidation_ltv = 0.80  # 80%

initial_collateral_value = loan_amount_eth / initial_ltv
liquidation_trigger_value = loan_amount_eth / liquidation_ltv
price_drop_to_liquidation = 1 - (liquidation_trigger_value / initial_collateral_value)

print(f"Collateral valued at: {initial_collateral_value:.2f} ETH")
print(f"Liquidation trigger: {liquidation_trigger_value:.2f} ETH")
print(f"Safe price drop: {price_drop_to_liquidation:.1%}")

Tip: Always factor in gas costs for repayment or liquidation transactions, which can be significant on Ethereum during congestion.