Binance, the leading cryptocurrency exchange by trading volume, unveiled today its lending program for Ethereum non-fungible tokens. Through the program, NFT holders will be able to borrow pre-determined ether amounts by putting their NFTs up for collateral in a peer-to-pool loan mechanism.
Currently, the program supports four collections: Bored Ape Yacht Club, Mutant Ape Yacht Club, Azuki, and Doodles. For an NFT holder to receive a loan, it must be over-collateralized, meaning that the value of the non-fungible token exceeds the amount the NFT holder is borrowing. There is no deadline to repay the loan. The payment period extends indefinitely.
However, the loan can be liquidated depending on a “health factor,” which Binance has written as follows:
Health factor = (NFT floor price * liquidation threshold) / debt with interest
Essentially, 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 falls below “1,” the loan will enter a liquidation process, which occurs through a Dutch Auction.
Binance’s move comes as more Web3 companies, such as Blur, are starting lending programs to give NFT holders more liquidity for their assets. While these programs may come with risks, some traders are taking advantage of the offers to increase cash flow, as coins often have more buyers and sellers than JPEGs in the current bear market.
Mayur Kamat said in press release shared with Rarity Sniper that Binance NFT is building and has added a host of features. “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.”
Binance’s and Blur’s Lending Programs Compared
The launch of Binance’s lending program comes just three weeks after leading NFT marketplace Blur debuted its own program. But as astute observers might note, there are some key differences between the two programs, including the liquidation process. Below is a table comparing the two programs:
| Company | Binance | Blur |
| Collections Supported | BAYC, MAYC, Azuki, Doodles | CryptoPunks, Azuki, Milady Maker, others |
| Protocol | Peer-to-Pool | Peer-to-Peer |
| Liquidation Mechanism | By Health Factor | Lender Triggered |
| Loan Amount | Predetermined | Varies by Lender |
The two programs differ considerably, especially in regard to the lending protocol, liquidation mechanism, and loan amount. Both come with risks as well, including quick liquidation, either from a falling floor price or an impatient lender, which poses a concern for holders who don’t want to lose their NFT.
However, the two programs share one thing in common: The loan can run indefinitely, which may be a plus for potential borrowers.
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