Frequently Asked Questions
What is NFT Loan on Binance NFT?
NFT Loan is a feature that allows borrowers to use their NFTs as collateral to secure funds from Binance NFT. This overcollateralized, open-term and peer-to-pool loan feature offers distinct Loan-to-Value (LTV) ratios for each NFT collateral-loan pair position.
The loan amount is based on the value of the NFT and the LTV ratio, which determines the maximum amount of credit issued based on the NFT’s value.
Each NFT collateral-loan pair position must be overcollateralized to secure a loan. This means that the value of the NFT collateral pledged by the borrower must exceed the value of the cryptocurrencies or digital assets advanced by Binance NFT Loan.
Binance NFT Loans are open-term. Borrowers can keep their positions open indefinitely, provided that the product supports the loaned and collateral NFT and the relevant LTVs are not exceeded (i.e., the loans are not liquidated).
What are the benefits of using Binance NFT Loan?
- Instant borrowing
- Zero gas fees
- Liquidation protection
- Low interest rates
Which NFTs can be used as collateral?
Currently, Binance NFT Loan supports 4 NFT collections: Bored Ape Yacht Club, Mutant Ape Yacht Club, Azuki, and Doodles. More collections will be included in the future.
Which cryptocurrencies can I borrow on Binance NFT Loan?
For the first phase of the launch, Binance NFT Loan currently only supports Ethereum (ETH) loans. However, there are plans to extend support to other borrowable assets in the future.
How to borrow crypto using NFTs on Binance NFT?
1. Go to the Binance NFT Loan page.
2. Click [Borrow Now].
3. Select an NFT collection under [My Assets] and click the NFT you want to use as collateral in exchange for your ETH loan.
Adjust the percentage on the slider, or enter the amount you want to borrow as a loan under [I want to borrow].
4. You’ll then see a confirmation pop-up window. Double-check that you’re happy with the [Borrow Amount] and [Interest rate]. Click [Confirm].
Note: It’s important to proactively check the Health Factor of your loan on the NFT Loan page to mitigate liquidation risks.
What is LTV, and how much can I borrow from Binance NFT Loan?
LTV stands for Loan-to-Value. The LTV determines how much you can borrow. Depending on which NFT you wish to collateralize, a different LTV may apply.
|ETH supply cap per collection||LTV / Collateral Ratio||Liquidation Threshold||ETH Borrow Cap per NFT||ETH Borrow Cap per User|
|BAYC||4,500||60%||Up to 80%||40||250|
|MAYC||2,000||50%||Up to 75%||10||100|
|Azuki||2,000||50%||Up to 75%||10||100|
|Doodles||500||40%||Up to 75%||2||30|
- LTV / Collateral Ratio: The ratio of the maximum ETH amount one can borrow relative to the value of your collateral (NFT floor price). LTV = Loan Value / Collateral Value.
- Liquidation Threshold: A critical level at which a borrower's collateral value, expressed as a percentage, must surpass to avoid liquidating their assets.
For example, the BAYC collateral value must stay above 80% of the loan amount to prevent asset liquidation.
- ETH Supply Cap per Collection: A limit determining the total amount of ETH borrowed against NFTs within a specific collection.
- ETH Borrow Cap per NFT: A restriction on the maximum amount of ETH a user can borrow against a single NFT asset.
- ETH Borrow Cap per User: A restriction on the total ETH users can borrow on Binance NFT Loan across all their NFTs.
How does Binance NFT Loan calculate the floor price?
The floor prices of the NFT collections are calculated based on Binance’s Oracle pricing and is an aggregation from 2 data sources, i.e., Chainlink and OpenSea.
What is the payment due date for my loan?
There is no fixed repayment schedule or deadline for your loan. Instead, the repayment is determined by the Health Factor of your NFT and the collateral. You can repay the loan in full at any time or maintain your Health Factor to keep the loan in good standing.
Can I partially pay my loan in advance?
Early repayment is an option available to you, and there is no limit on the amount. You can choose to repay the loan in partial amounts. However, it's important to note that in the event of NFT liquidation, the only option available is full debt repayment. Partial repayment won't be possible in the event of NFT liquidation.
If you repay the loan partially in advance, you'll still have to pay the total interest amount charged on the remaining amount. However, it can help increase your Health Factor.
A higher Health Factor can improve your borrow position by making it less likely for the liquidation threshold to be reached.
How to pay my loan in advance on Binance NFT Loan?
1. Go to the NFT Loan page and click [My Orders].
2. Click the [Ongoing orders] tab and find the collateralized NFT. Click [Repay] next to the NFT.
3. Adjust the slider or enter the amount of ETH you want to repay partially. Click [Repay].
Note: You can repay partially as long as your NFT is not liquidated, but once it's liquidated, you can only pay the full amount to regain ownership of your NFT.
How do I repay a loan in full and get my NFT back?
Here are a few important pointers regarding repayments:
- Make sure you have sufficient ETH in your account for repayment.
- Once you’ve repaid the loan in full, including interest and liquidation fee if applicable, the NFT will be released and returned to your account.
- However, if you fail to make payment in full before the NFT enters the liquidation process, it will be sold in a Dutch Auction. In that case, you’ll lose ownership of your collateralized NFT, and the NFT will be transferred to the auction winner.
1. Go to the NFT Loan page. Click [My Orders].
2. Go to the [Ongoing orders] tab and find the collateralized NFT. Click [Repay].
3. You’ll see a Repay pop-up window. Adjust the slider to 100% and click [Repay].
How is the interest rate calculated?
The interest rate is calculated using the total current debt (including principal and previously accrued interest) as the principal amount, ensuring that the interest calculation reflects any accumulated interest over time.
The interest rate is set based on Binance's internal algorithm and may be subject to change based on market and risk parameters. Please refer to the interest rate on the NFT Loan page. If the interest changes, you will be notified by email/SMS.
1. Daily Interest Rate Calculation
The interest rate for a loan is calculated daily. Interest charged will be calculated and added automatically to the outstanding debt on a daily basis at 00:00 (UTC).
Any changes to the interest rate will apply to both present and future loan periods. Past loan periods remain unaffected and will be charged according to the interest rate at that time.
For example, if you take a loan today (Tuesday) at a 10% interest rate, the daily interest rate will be calculated as (10% * loan amount) / 365 days. If the interest rate changes to 15% tomorrow, the new daily interest rate starting from Wednesday will be (15% * loan amount) / 365 days.
2. Interest Calculation using Total Current Debt as Principal:
The interest is calculated by considering the total current debt (which includes the principal and any previous interest accrued) as the principal amount.
Interest: Rounded up to 4 decimal places, regardless of the small amount, the minimum interest reflected will be 0.0001.
e.g. 0.00000003 interest amount -> 0.0001
0.00011 - > 0.0002
For example, if the principal is 4 ETH and today's interest is 0.01 ETH. Tomorrow, the principal amount will be 4.01 ETH (including the interest from today), and the interest will be calculated based on this new principal.
What is the Health Factor?
The Health Factor is a loan safety metric based on your loan-to-collateral value ratio. The higher the value, the safer your funds' state is against a liquidation scenario.
The formula is as such:
Health factor = (NFT floor price * liquidation threshold) / debt with interest
- Floor price: Based on Binance’s Oracle pricing, and an aggregation from 2 data sources, i.e., Chainlink and OpenSea.
- Liquidation Threshold: A critical level at which a borrower's collateral value, expressed as a percentage, must surpass to avoid liquidating their assets.
- Debt: Your outstanding loan
- Interest: Interest owed
Please proactively monitor your active loan's Health Factor on the NFT Loan page to mitigate liquidation risks, as liquidation notifications may be sent but are NOT guaranteed.
(1) If the health factor is lower than 1.2, you’ll be notified by email/SMS to add a deposit every 6 hours.
(2) If the health factor falls below 1, your loan will enter into the liquidation process, and you’ll be notified by email/SMS every 4 hours.
What happens when my loan’s Health Factor changes?
Depending on the value fluctuation of your asset, the Health Factor may increase or decrease. If your Health Factor increases, it will improve your borrowing position by making the liquidation threshold more unlikely to be reached.
If the value of your collateralized assets against the debt (borrowed amount + interest) decreases instead, the Health Factor is also reduced, thus increasing your liquidation risk.
What is the liquidation process?
The liquidation process of an NFT loan follows several steps designed to ensure that the lender can recover their funds if a borrower fails to meet the conditions of the loan. Here's an overview of the process.
1. Loan Default: A liquidation event is triggered when the Health Factor falls below 1.
2. Initiating Liquidation: Upon a liquidation event, Binance NFT may initiate the process to liquidate the NFT provided as collateral for the loan.
3. Valuation of the NFT: The liquidated NFT is appraised based on the floor price when the Dutch Auction starts, which is crucial in conducting the sale to recover the outstanding loan amount.
4. Selling the NFT: The liquidated NFT is up for sale through the Dutch auction process at a fair market price. In a Dutch auction, the price gradually decreases. The Dutch auction starts at 125% of the current floor price, and the price will linearly decrease by 0.5% every 10 minutes, with a resting price of 70%. The Dutch Auction will run for 24 hours.
5. Recovering Loan Amount: Once a bid has been accepted, the liquidated NFT is sold to the buyer, and the funds raised from the sale are used to repay the outstanding loan balance.
6. Distribution of Proceeds: If the liquidated NFT sells for more than the outstanding interest, principal, and liquidation fee, the net surplus may be returned to the borrower. If the sale proceeds are insufficient to cover the loan, the borrower will not get anything in return, and Binance NFT will bear the bad debt.
7. Resolution: The liquidation process is complete after the loan amount and associated fees are fully recovered.
8. Collateral Takeover: If the liquidated NFT fails to be sold off during the 24-hour Dutch auction period, Binance NFT will seize the NFT collateral, taking over ownership and control of the NFT asset.
Liquidation Dutch auction
A Dutch auction is a type of auction in which the price starts high (usually above the floor price) and gradually lowers until a bidder is willing to purchase at a particular price. In the context of liquidating NFT loans, a Dutch auction is a process that Binance NFT can use to recover their funds when borrowers default on their NFT loans.
Is there any liquidation protection?
For NFT holders’ safety, there will be a 24-hour Dutch auction window where they can still repay their outstanding loans.
Total Debt Amount = Borrowed Amount + Interest Accrued + Liquidation Fee (5% of the borrowed amount with interest)
Your NFT-backed loan will only not get liquidated if you repay within the 24-hours Dutch auction period before another person bids on your liquidated NFT.
Binance NFT can’t guarantee that users can regain ownership of their NFT during liquidation, which is why it is vital to ensure your Health Factor does not go below 1.
1. How is the interest calculated if a loan goes to the liquidation stage?
Interest will accumulate continuously during the Dutch auction, until the user fully pays off their loan. Once an NFT has been liquidated, the user must repay the loan amount, interest, and any liquidation fees before getting it back.
2. What if the floor price of my NFT recovers after liquidation?
Even if the floor price rises back up after the NFT has entered into the liquidation process, you are still required to repay your loan as soon as possible. Failure to do so will result in the NFT being sold, and you’ll lose ownership of the collateralized NFT.
3. Will my loan be liquidated if the price of the cryptocurrency drops?
No. Your NFT loan is based on your loan’s Health Factor, and it is not affected by the price of cryptocurrency. It is crucial to carefully monitor and maintain your Health Factor within a secure range to prevent potential liquidations.
4. What if the floor price drops and the auction sale can’t cover it?
The auction proceeds would first go to Binance NFT to pay off the outstanding debt (borrowed amount, interest accrued, and liquidation fee). The remaining loss will be covered by Binance NFT.
5. If I'm the bidder that won the Dutch auction, how can I get the NFT?
The liquidated NFT will be transferred to the highest bidder’s account automatically.
6. If the bid exceeds the debt, who will receive the difference?
The borrower. The excess will belong to the borrower if the collateral is sold in an auction for greater than the loan amount.
7. Can I take an NFT loan using my BAYC / MAYC NTFs while it is committed to the Ape NFT Staking Program?
Unfortunately, Binance NFT currently doesn’t support staking and loaning simultaneously. You have to choose between taking out a loan against your BAYC / MAYC NFTs, or staking them in the Ape NFT Staking Program to earn $APE rewards.
8. What are the risks of NFT Loans for borrowers?
Before borrowing crypto through an NFT loan, carefully analyze the risks and understand the complete terms and conditions offered by the platform. Only borrow what you can afford to lose, diversify your holdings, and stay well-informed about the market and industry developments to mitigate these risks.
1. Collateral price volatility:
The value of NFTs can be subject to significant fluctuations as the NFT market is still relatively prone to changes in demand or investor sentiment. If the collateral value drops significantly, you may risk liquidation, losing the NFT used as collateral.
2. Liquidation risk:
If the Health Factor of your loan drops below the liquidation threshold set by the platform, your collateral may be liquidated to repay the loan. This may result in the loss of your NFT, and you might receive less than the initial market value for it.
3. Interest rate fluctuations:
The interest rates on crypto loans can change per market conditions or platform policies. If interest rates increase, the cost of servicing a loan might rise, negatively affecting your ability to repay the loan.
9. How often do I need to top up my loan balance to maintain the Health Factor?
The frequency of topping up your loan balance to maintain the required Health Factor depends on market fluctuations and the performance of your collateral assets.
It’s crucial to monitor your loan and collateral closely, especially during periods of high volatility. Should the collateral value decrease, you may need to top up your loan balance more frequently to maintain the required Health Factor and avoid liquidation.
10. How can I claim my airdrops when my NFT is deposited in Binance?
Binance is currently unable to support any airdrop claim on behalf of users. We advise you to repay your loans and withdraw your NFTs before any snapshot or airdrop claiming. More details will be provided on Binance NFT’s Twitter.
11. What is the data precision in the NFT loan process?
Floor price: Cut directly to display 4 decimal places.
e.g. 53.3456499 => 53.3456
Loan Amount: Cut directly to display 4 decimal places.
e.g. 53.3354 x 60% (loan-to-value percentage) = 32.00124 => 32.0012 loan amount
Interest: Rounded up to 4 decimal places. Regardless of the amount, the minimum interest reflected will be 0.0001.
e.g. 0.00000003 interest amount => 0.0001
0.00011 => 0.0002
Liquidation Fee %: Rounded up to 4 decimal places
e.g. 59.03459 x 5% = 2.9517295 => 2.9518
Repayment: Restrict up to 2 decimal places for partial repayment.
Full repayment: Exact amount, displayed in 4 decimal places.
Dutch auction: Each price reduction is rounded up to 4 decimal places.
e.g. Starting price = 0.0008 ETH remaining debt
every price decrease = 0.5% x 0.0008 ETH = 0.000004
Regardless of how small the price decrease is, the minimum step size decrease is 0.0001.
i.e. The step size price decrease speed is bigger and faster.
Health Factor: Only 2 decimal places are displayed.
e.g. 1.256 => 1.25 displayed
1.00001 => 1.00