Borrowers
Selling your NFTs means losing the potential upside value gain, triggering a capital gains tax event. By depositing your NFTs as collateral, you are able to obtain liquidity (working capital) without selling your assets, not incurring capital gains taxes.
The Role of the Unlockd Account in Borrowing
The process begins with your Unlockd Account, a unique feature that acts as the hub for all your transactional activities on the platform. When you're ready to borrow:
Deposit Your NFTs: Transfer one or multiple NFTs from eligible collections into your Unlockd Account. This account, reminiscent of a multi-signature wallet, assesses the value of your NFTs, setting the stage for your borrowing capacity.
Assessment and Valuation: Unlockd's system instantly evaluates your NFTs, considering factors like market demand, rarity, and other intrinsic qualities. This valuation, in conjunction with the Loan-To-Value (LTV) calculations, determines how much you can borrow against these assets.
To learn all the details, check the following section:
pageUnlockd AccountBorrowing against your NFTs in Unlockd, rather than selling them, can offer significant tax advantages. This strategy allows you to access liquidity while potentially deferring capital gains taxes that would be incurred from an outright sale, optimizing your tax situation.
Bundle up to 100 NFTs in a single loan
One of the standout features of Unlockd V2 is the ability to use multiple NFTs as collateral for a single loan. This flexibility allows you to maximize your borrowing power and diversify the risk associated with individual NFT volatility.
Learn more here:
pageMulti-NFT CollateralInitiating a Loan
When it's time to borrow, the process is streamlined for ease and efficiency:
Selecting Assets: In the 'Borrow' section, choose the asset type you wish to borrow against your NFTs. Each type of NFT has a supported pool (WETH or USDC)
Determining Loan Amounts: The platform guides you in setting the amount based on the collective value and LTV of your deposited NFTs. The innovative Dynamic LTV model calculates how much you can borrow against your NFTs. This model adapts to market conditions and the specific attributes of your NFTs, ensuring a borrowing limit that's both realistic and advantageous.
Keeping Utility and Ownership
A groundbreaking aspect of Unlockd V2 is its 'Keep Ownership & Utility' feature. Even as your NFTs are locked in as collateral, you retain access to their inherent utilities — whether it's participating in token-gated communities, accessing play-to-earn features in games, or claiming airdrops. This functionality ensures that your digital assets continue to work for you, even as they secure your loan.
pageKeep Ownership & UtilityManaging and Repaying Your Loan
With no fixed repayment period, Unlockd offers unparalleled flexibility in loan management.
You have to repay the loan in the same asset type, along with the accrued interest, at your convenience. For example, if you borrow 1 ETH you will pay back 1 ETH + interest accrued.
While the supply and demand ratio of the asset influences borrowing rates, the primary driver is actually the utilization rate of available lending pools. As more assets are borrowed without corresponding deposits, the rate climbs due to increased demand on a limited resource.
As long as your position is safe, you can borrow for an undefined period. However, as time passes, the accrued interest will grow, making your health factor decrease, which might result in your deposited assets becoming more likely to be liquidated.
Avoid being liquidated
Maintaining the health of your loan is crucial to avoid liquidation. Liquidation occurs when the value of your collateral falls below a certain threshold, known as the Health Factor. This typically happens due to market volatility or a decline in the value of your NFT collateral.
Monitoring the Health Factor
Stay Informed: Regularly monitor your Loan Health Factor within the Unlockd platform. A drop below the critical threshold indicates an increased risk of liquidation.
Alerts and Notifications: Set up notifications in the Unlockd system to receive alerts if your Loan Health Factor approaches dangerous levels.
Proactive Loan Management Strategies
Partial or Full Repayment: One of the most direct ways to improve your Loan Health Factor is by repaying part or all of your loan. This reduces the outstanding amount and consequently improves the health of your loan.
Adding Collateral: You can deposit additional NFTs as collateral to bolster your Loan Health Factor. This is particularly effective if you have NFTs that have retained or increased in value.
Understanding the Liquidation Process
Borrower Grace Period: In the event your loan becomes unhealthy, Unlockd provides a grace period for you to take action and rectify your loan status before the liquidation is actually executed.
Liquidation Mechanics: If liquidation is initiated, Unlockd employs a smart liquidation system designed to minimize asset loss, first with a Liquidation Auction in the Marketplace and, if necessary, using a third-party protocol known as a External Liquidation Gateway.
Full loan terms and characteristics
pageLoan characteristics
Last updated