🤔How Does NiftyApes Work?

A quick overview of how lending and borrowing works on NiftyApes

Level Set

NiftyApes is a protocol where Borrowers lock their non-fungible tokens (also known as NFTs or ERC-721s) as collateral in order to borrow fungible tokens like Ethereum's native token Ether and whitelisted ERC20 tokens like MakerDAO's DAI.

How It Starts

1. Lenders lock their tokens (Ether or DAI) into the protocol.

2. Next, lenders sign a meta-transaction containing the details of the loan offer. The offer includes...

   1. The NFT collection (contract address) or specific assets (contract address + token number).

   2. The amount of liquidity offered.

   3. The interest rate

   4. The duration of the loan in days.

   5. An example offer looks like this

      1. 50 Ether, at 15% APR, for 120 days for any Bored Ape

3. Borrowers connect their wallet to the NiftyApes dApp and view the offers available against the NFTs they own.

4. Borrowers hit the "Money Button" which simultaneously escrows their collateral in the NiftyApes smart contract and transfers the liquidity in a single transaction.

What happens next is powered by the unique NiftyApes mechanism, "Harberger-Style Lending Auctions."

Harberger-Style Lending Auctions Explained

Lender 1 has a lot of capital, and they're comfortable with a modest LTV and a respectable APR on any Bored Ape. They set an open offer of 50Ξ for 90 days at 15% APR for all Bored Apes.

Lender 2, has less capital, higher risk tolerance, and a bullish thesis on Bored Apes with the 3d + Toga attribute, so they set a more aggressive offer on Bored Ape #6974.

Every offer is presented and executable in the NiftyApes offer-book, but the front-end will sort the most liquidity, at the cheapest APR, for the longest time first.

The owner of BAYC #6974 connects their wallet on the NiftyApes platform. They see the "Top Loan," the best offer based on NiftyApe's lightly opinionated front-end.

Instant liquidity for Borrowers, extremely flexible flexible mechanisms for lenders, & pricing data for the market

Over the life of the loan, the Bored Apes Yacht Club's price increases but the active loan has not responded to the collateral's increase in value.

Lender 3 decides to bid on the active loan.

The borrower's terms are immediately upgraded. Any extra funds offered in the new loan can be drawn down by the Borrower.

Lender 3 refinances the loan automatically with better terms. Lender 3's liquidity goes to pay the Prinicipal Lender 2 loaned to the Borrower. Lender 3 also pays a 0.50% premium to refinance the active loan + any outstanding interest accrued.

New lenders can provide better terms, lower APR or extra funds many times over the lifespan of the loan.