Potential Risks and Mitigation
We understand that NFTs are volatile being in the early stages: we will cap the LTV (Loan to Value) ratio at a maximum of 40–55% even for the best creators and otherwise typically range between 10-35% for moderate ones. For financial NFTs, the LTV will depend on the underlying asset/token/project. Granted we are operating in a very volatile market (NFTs and crypto), we found it prudent to limit the LTVs to the aforementioned level. In case of a very reasonable decline in the market/prices, this low LTV will provide a buffer for borrowers, giving them opportunities to post additional capital to avoid liquidation (by posting/depositing Strip tokens/USDT to maintain their position).
There is always a probability that the borrower might default. To reduce this we are incorporating several ways to reduce risk by sharing insights with lenders that might help them make an informed decision. These data points include but are not limited to — artist profile; past sales aggregates and frequency of sales volume, NFTs trading history, owner’s credit and risk score eIn addition, for For financial NFTs, we will provide information in regards to the underlying assets/tokens, where all the data is accessible on sites such as Coingecko & exchanges.
Art and collectibles have a highly individualistic value, and the NFT market pre consists of digital art and animation moments. Not every assessor or potential buyer/lender/underwriter would express the same level of interest or desire in placing bids for all kinds of NFTs. Initially, when the participants on the platform are fewer, not all bids might go through.
As a collateralized lending platform, we rely on the data provided by our marketplace partners who facilitate the sale and purchase of these said assets. The data points along with others also include LTP (Last Traded Price) which often acts as the base for determining the collateral value. Some users might engage in wash trade on these marketplaces before bringing the asset on our platform for collateral. We expect the lenders to consider other data points such as the artist’s previous creation’s performances, borrower’s history etc.
Like any technology platform, ours too is vulnerable to security bugs that might impact the platform’s functioning on a small or large scale. These are not limited to our internal security issues arising from our mistakes but also involves ethereum blockchain and others.
We would engage security agencies from time to time to ensure best practices are followed in every sphere.