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.

Deposit your NFT as collateral

When you provide an asset as collateral, you will receive a uNFT, an ERC-721 token, representing your deposited NFT.

Borrow assets

Simply head to the Borrow section and select the asset you want to borrow. Set the amount to be borrowed you need based on your available NFTs that could be used as collateral for the loan, and constrained by the Loan-To-Value ratio. Currently, you need to take one isolated loan for each NFT you want to borrow against.

Keep collateral utility

This feature is still under development and is expected to be deployed with Unlockd V2.

With True Ownership, Borrowers are still eligible for airdrops, exclusive access, play-to-earn games perks, DAO governance or whatever utility the NFT deposited as collateral has. An early version of True Ownership is available to Borrowers thanks to the utility of the uNFT. This non-approvable, non-transferable debt token represent a receipt of your loan.

Repay the loan

You repay your loan in the same asset you borrowed. For example, if you borrow 1 ETH you will pay back 1 ETH + interest accrued.

The interest rate you pay for borrowing assets depends on the borrowing rate derived from the asset's supply and demand ratio. When you repay the loan, you return the uNFT that was issued when you deposited your collateral, and your pledged NFT will be released so that you can transfer it normally to any other wallet or contract.

There is no fixed time period to pay back the loan. 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 liquidation

In order to avoid the reduction of your health factor leading to liquidation, you can totally or partly repay the loan. In the future, you will also be able to deposit more NFTs as collateral in order to increase your health factor. Out of these two available options, repaying the loan would increase your health factor more.

Even if your loan unhealthiness triggers a Liquidation event, you will still have time to repay thanks to the Borrower Grace Period.

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