🛠️Key Terms

Here are the basic terms you may encounter when getting NFT secured loans, they are universal and generally accepted, you will find them on almost all lending platforms.

Floor price

Floor price is the minimum price you must pay to purchase an NFT from a collection. It is determined based on the original cost of minting the token and the supply and demand of NFTs on the secondary market. Floor price is the most important factor on the basis of which the possible loan amount is calculated.

Amount

The amount of loan you can receive against an NFT. It depends on factors such as NFT value, collection floor price, collateral price volatility, acceptable loan-to-value (LTV) ratio, lender policy and the borrower's credit history.

Interest

The fee charged by the lender for borrowing the money. It is usually calculated as a percentage of the loan amount and accrues over the loan duration.

Duration

The length of time you have to repay the loan. It can vary depending on the lender's terms and the amount of the loan. Typically, it can range from a few days to a few months.

APR

Annual Percentage Rate: The annualized interest rate you'll pay on the loan, expressed as a percentage. It includes both the interest and any additional fees or charges.

Repayment

Loan Repayment Amount. This includes the amount of the loan and the interest paid to the lender for providing the loan.

LTV

The LTV ratio shows the current ratio of loan amount to collateral value. Lenders often use it to determine the maximum loan amount you can get based on the appraised value of your NFT. It helps lenders manage risk and ensure that the loan amount remains proportional to the value of the collateral.

For example, if your NFT has a value of $10,000 and the lender offers an LTV of 50%, you can borrow up to $5,000 (50% of the NFT's value).

Liquidation threshold

The liquidation threshold is the indicator above which the liquidation of the borrower's position occurs. If the value of the collateral drops drastically, the lender risks losing its money because of the risk of the borrower defaulting. To avoid such a situation, the collateral when it reaches a certain LTV ratio can be sold at a market price in order to return the money to the lender. The borrower, however, will often also have to pay a liquidation penalty, averaging between 2 and 10% of the value of the loan.

Often, the inverse of the liquidation threshold is referred to as the "Health factor". Accordingly, the closer the LTV is to the liquidation threshold, the lower the Health factor and the higher the probability of liquidation. Conversely, the lower the LTV, the higher the Health Factor and the lower the probability of liquidation.