Binance Reveals NFT Loan Service for BAYC, Azuki, and ETH Blue Chips
Users can borrow a certain amount of ETH by putting up their NFTs as collateral in a peer-to-pool mechanism. This allows them to obtain instant liquidity without having to sell their NFTs.
What's the scope of Binance's NFT lending program
Leading cryptocurrency exchange, Binance, is expanding its NFT platform by launching a lending program for Ethereum-based NFTs.
With that, users can borrow a certain amount of ETH by putting up their NFTs as collateral in a peer-to-pool mechanism. This service currently supports four NFT collections: Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Azuki, and Doodles. To secure a loan, holders must ensure that their loans are over-collateralized, meaning that the value of their NFTs must exceed the amount of ETH they borrow. There is no deadline to repay the loan, allowing holders to get continual access to liquidity without having to sell their NFTs.
It should be noted that the loan can be liquidated depending on its "health factor," which Binance has defined as: "Health factor = (NFT floor price * liquidation threshold) / debt with interest." As shown here, liquidation can occur if the ratio of the floor price of the NFT collection (multiplied by the liquidation threshold) to the amount of debt and interest left on the loan falls beyond a certain level. If the health factor is less than "1," the loan will be liquidated through a Dutch Auction.
Starting from May 26th (until further notice), anyone who obtains an NFT loan on Binance can enjoy 70% off the current borrowing interest rates. Instead of 11.2% of interest per annum, borrowers must only pay 3.36% during the promotion period. Apart from competitive rates and instant liquidity, users are protected under Binance's liquidation protection scheme, which offers a 24-hour auction window for users to repay their outstanding loans.
"We already have low fees and the Binance peace of mind. Now, NFT Loans will add a new form of liquidity for NFT holders, allowing them to participate in the market without having to let go of their precious NFTs," said Mayur Kamat, Head of Product at Binance.