Safely onboarding NFT collections as collateral

NFTs
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:point_right: Opening a discussion initiated from the conversation here on Discord.

Abstract

Following Hifi’s Blog Post here about their solutions for the growth and retention challenges NFT community faces, there is a solution called “Pooled NFT”.

The concept of Pooled NFT (which might be named differently overtime) is about providing the ability for NFT holders to deposit their NFT into a collection-specific pool.

Collection that have pools might qualify to be used as collateral in the lending protocol for instant liquidity, or not.

Similar to the exercise being done in this forum thread here about Defining a process to add new collateral, Hifi needs a process to safely onboard NFT collections as collateral too.

Onboarding an NFT collection as collateral outside the scope of the ‘peer to peer’ NFT lending model is a novel feature that is mostly unknown and undocumented anywhere currently. This bring the opportunity for the Hifi community to discuss and create a unique process to be looked upon in the future.

Make your voice heard and bring your ideas to the table. With you help, we’re going to space! :rocket:

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Where as a series of uniform questions applied from the onset could be created in a form to be submitted when considering a NFT project as collateral, could be produced, to provide an introductory analysis for discussion on whether it merits a governance vote.

We could work together to develop the questions that would assist in our analysis of the project to see if it would/ could be a good fit/ or to defer said project.

Additionally, we don’t want to offend projects we do not approve; though we are also not going to be able to accept all projects for various reasons.

Quick story:

I have apartment buildings and I have a uniform set of questions I ask all prospective applicants when they call or email me, and by asking them these questions the same way every time, right away I know if I am going to meet them for a tour or not.

Some (many) do not qualify and I used to say — ‘sorry I can’t rent to you, because…’ though that just gets people upset w/ me, so now I just tell people that I am going to continue accepting applications before making a decision.

It defers them and keeps them happy.

So I think we are going to want to have uniform questions and even a system for when projects are not selected; we still want to maintain a good rapport.

Ironically, this process that I am referencing is making me think of the OS checkmark verification we deal with and how we keep getting deferred, lol.

Also, there may well be nft projects that initially we do not accept as collateral, though then they mature and we do accept them ultimately.

So I suppose it comes back to developing the questions/ criteria to streamline the process.

I genuinely feel identifying good questions right away on a web form — could automate a lot and make the decision making process & dialogue much easier.

Here are some question ideas to get us started:

What is the NFT Project name?
Is the NFT project on ethereum?
Who is applying?
Community member or admin?
Is the team doxxed?
How long have they been around?
Do they have an OS check mark?
What is the project market cap?
What is daily volume?
How many token holders?

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This is great! I think your experiences brings important value on how promote good relationship with candidates whatever the outcome.

I was also thinking about the other thread about onboarding collateral that already exists in this forum. I feel we should put efforts in that one as well, to have a base model for this one. Even though they are different, there will be many similarities between both fungible and non-fungible onboardings. What do you think?

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What does everyone else think?

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What about the different categories for NFTs?
Here are a few of the most important ones in the space. Do you think we should make sure to have diversity?

  1. PFPs
  2. One-of-one artwork
  3. Generative Art
  4. Collectibles
  5. Photography NFTs
  6. Music NFTs
  7. Gamified NFTs
  8. NFT event tickets
  9. Membership passes
  10. Domain names
  11. Utility
  12. Sports
  13. Trading cards
  14. Virtual worlds
  15. Biohacking
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These are some wonderful categories to discuss further.

Ultimately, tvl is the metric that shall be the bel weather on a bell curve via comparative analysis (i.e. defi pulse, etc); and the lending/ borrowing utility hasn’t begun yet & I anticipate that that tvl metric, once utility of lending is operational, will dictate value, followed by token price appreciation.

Will have to see how everything plays out; though for those that want to work and justifiably add value, I would think there are and will continue to be opportunity. I am specifically interested in serving as a catalyst to enhance TVL; re: discussion today on categorical selections. NFT diversity (utility, pfp, and so on, etc). I’m really more focused on tvl metrics & partnerships with what we collectively dictate are worthy partner projects via specific guideline criteria (only what should criteria be??); as we have seen this week, it’s very obvious that we can’t judge a book by its cover. So I think digging under the surface and deciding OK what are those factors that are criteria in determining if a project is worthy of partnering with. I think that’s a logical discussion to have.

Also, The communities are the catalysts so it’s a matter of like where our are in roads with communities because the owners are individual, though they are part of communities and have community leaders that are influential.

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The lending protocol TVL should grow in tandem with the NFT lending protocol. How do you do this?

If you were measuring community involvement or conversion to TVL, how would you do that?

What factors are you trying to surface or what criteria do you use to define a specific strategy?

Do you think that a good example of it are the latest blog posts from the road to token swap to our solution?

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A diverse group there for sure and it will be good to cover many bases whilst also balancing selections as merit based and supporting fledgling categories which one day may become the dominant force.

A couple of thoughts to consider for all, what happens if a NFT is flagged as compromised, in particular if flagged after being used as collateral? I read somewhere there are around 75 BAYCs with this status.

If part of criteria is based upon volume, do we factor in all marketplaces? If so, do we need to consider the wash trading that occurs on some for incentives e.g. tokens, airdrops etc?

Once we learn more about the protocol and how it is intended to work with pools, this subject may become easier to provide thoughts and answers on, however the overarching principles I feel we need to have is to ensure it has ease of interpretation and without roadblocks and/or friction.

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What would you do to create and manage those categories? Is there any way to automate that process?

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I form the view (currently) satisfying criteria is the key consideration. Once we learn more on the mechanics of how the protocol is to work with pools etc, the process on how best to manage on-boarding requirements and considerations should become clearer.

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The documentation about how the protocol works and the repo are available to get familiar about it.

Users’ safety must be considered in all aspects of on-boarding requirements for new NFT collections.

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Onboarding new NFT collections needs to be a well-defined process due to the Pros and Cons associated with them.

Pros of Onboarding New NFTs:

  • Allows the Hifi Lending Protocol to offer a wider variety of lending options to borrowers.
  • Can increase the overall liquidity and market demand for the NFT.
  • Can potentially generate higher returns for lenders through the interest earned on the loan.

Cons of Onboarding New NFTs:

  • Increases the risk of losses for lenders if the NFT does not perform as expected.
  • Requires additional due diligence and risk assessment to ensure the authenticity and market demand for the NFT.
  • May expose the Hifi Lending Protocol to additional legal or regulatory risks if the NFT is not compliant with relevant laws and regulations.
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It does need to be well defined, however also, finding the balance between Pro’s, Con’s & getting to market is key. The NFT Lending/Borrowing space is moving quickly & as such, having a fluid process which can be adjusted with agility when required may benefit vs attempting to have all the answers & solutions up front.

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Thank you for your comment. I agree that a well-defined process is key, but I also think that being able to adapt quickly is important as part of the process. I think that it is important to be able to change direction as the market conditions changes or the DAO needs changes, so that you are able to best serve the needs of your community.