NFT Loans: Explained
A one-page explanation of how NFT Loans work
JewelSwap has built the first decentralized NFT liquidity protocol, supporting instant NFT-backed loans on the MultiversX Blockchain Network.
These NFT Loans allow users to borrow EGLD against their NFT. By depositing their NFT, they can borrow up to 50% of the NFT's value in EGLD.
The Health Factor basically portrays the difference between your borrowed amount and how much the NFT is worth. If you borrowed 1 EGLD against an NFT worth 2 EGLD and the NFT loses 25% of value, then your loan became more risky for the platform. After all, you now essentially borrowed 1 EGLD against an NFT worth 1.5 EGLD. This means the Health Factor of your Loan went down. If the Health Factor of your Loan goes down too much, you will get liquidated! To avoid liquidation, it's best to pay back the entire debt and close the Loan.
You deposit a NFT which has a floor-price of 3 EGLD. With this NFT, you open a new Loan of 1.5 EGLD (the maximum amount you can borrow - 50% of the value).
You chose the 16 days interest plan, which means in 16 days you have to pay at least the interest of the loan, to keep the loan running. You can also decide to pay back the entire debt (borrowed amount + interest) to close the loan and receive back the NFT.
Let's say you want to keep the loan going, because you can't pay back the full 1.5 EGLD yet. In this case, you have to pay the accrued interest for your chosen 16 days plan. 4% of 1.5 EGLD: 0.06 EGLD. If you do not pay the accrued interest before the end of the deadline, your loan's collateral will be put up for liquidation.
You paid the 0.06 EGLD interest on your loan. Now your loan can continue for another 16 days.