The Artist of an artwork — either physical or digital — registered in the Artiside Patronage platform, can utilize their items as collateral for borrowing USD-like cryptocurrencies (see the definition of the USD-like cryptocurrency above).
The borrowers can expect to get a loan amount (LTV: Loan to Value) of approximately 50 percent to 60 percent of the asset’s curated value, with interest rates ranging from 20 percent to 100 percent, depending on the item’s popularity.
The Art De Finance lending protocol facilitates the trustless, decentralized matching of borrowers and lenders. Structured digital signatures are used to validate loan term attestations as part of the lending protocol.
Borrowers can access liquidity against their assets without selling them. For both NFTs and AC holders, if a large percentage of the portfolio is locked up in these illiquid assets, borrowers can use the Art de Finance platform to finance other investments without selling their assets.
The collateralized lending system in the Art de Finance Defi platform in combination with the auction system in the same platform provides a unique opportunity to utilize the ownership of an artwork, either physical or digital, as collateral while being listed on the sales market.
To our best knowledge, there is no such marketplace/lending platform serving the same functionality yet.
To use collateralized lending in the platform, a borrower needs to set 1) the target utilization of the collateral compared to the curation price, 2) the interest rate, and 3) the duration of the loan. The target utilization cannot be greater than 50 percent. This information is provided and actively updated to the potential lenders.
The borrower should deposit an interest amount that is large enough to cover the total interest accumulated for the entire duration of the lending under the saturated target utilization.
The borrower also needs to set the type of the lender: 1) crowd lenders or 2) a single P2P lender. At the end of the lending period, if the borrower fails to pay back the loan, a liquidation process is initiated.
In the case of the crowd lenders, the item is listed on the auction system at 100 percent of the valuation price for a week. If the sales fail within this period, the posting price decreases by 10 percent for each week until the sales are completed. In the case of a single P2P lender, the lender can either choose to receive the ownership or proceed with the liquidation procedure.
I. A borrower prepares a NFT through the process of registration as described in the previous sections.
II. The borrower submits a loan request by specifying the target utilization, interest rate, duration of the loan, and type of lending.
III. The borrower deposits the interest.
IV. As a lender signs the contract, a loan amount becomes immediately available in the borrower’s account.
V. For the P2P lender case, as soon as a single P2P lender sign the contract, no more lenders can join. Meanwhile, for crowd lending, the lending is available until the target utilization is Saturated.
VI. Every day, t he fixed interest rate is accounted for by each lender. The interests of the loan become immediately redeemable by the lenders and the interest deposit made by the borrowers decreases accordingly.
VII. As soon as the total principal of the loan is returned by the borrower, the lending contract terminates, and the remaining interest deposit returns to the borrower’s account.
VIII. If the borrower fails to pay back the loan at the end of the lending duration, the liquidation process starts (see below).
I. As the liquidation process is initiated, the sales posting of the item listed in the marketplace/auction system is removed and the control of sales posting is transferred to the liquidation system.
II. In the case of crowd lenders, the item is posted on the auction system at 100 percent of the valuation price for a week. If no auction deal is made, the item is re-posted for another week with the 10 percent decreased posting price, and so on.
III. In the case of a P2P lender, the lender can decide whether to proceed with the liquidation process as with the crowd lenders’ case or transfer the ownership of the mirror NFT (and thus the ownership of the original artwork attached to it) to himself/herself.
IV. After a successful liquidation, the portion of the purchased price otherwise assigned to the owner (i.e. 20 percent) is fairly distributed among the lenders, based on their lending share.
Collateralization / Lending System
Currently, a large number of Web 3.0 protocols have constituted an environment in which anyone can participate but fundamentally does not solve the centralization of governance tokens.
Art de Finance plans to introduce and operate 'Quadrant Voting' to solve these problems and build Artiside, a decentralized Web3.0 Social NFT Platform.
Quadrant Voting is a solution for decentralization without compromising the utility inherent in tokens. It enables democratic governance decisions and encourages participation in governance by various community members. Artiside is building a platform where anyone can express their decision-making without restrictions on the purchasing power of tokens.
ADF works as a Governance Token to make decisions in the platform including the following but not limited to.