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Cyan has always aimed to offer borrower-friendly solutions, pioneering the first peer-to-pool protocol that avoids liquidating loans based on NFT spot price. Instead, our vaults only observe monthly repayments as a default event, ensuring that as long as borrowers make their payments on time, their loan remains active regardless of NFT price fluctuations. This structure provides significant peace of mind, allowing borrowers to keep their assets safe as they continue to make payments.
However, as the protocol evolves, we are committed to offering greater flexibility for both borrowers and lenders. With rising demand for lower interest rates, Cyan developed auto-liquidation vaults to meet the needs of those seeking loans with more lenient terms. These new loans include NFT price observation, meaning that if the NFT’s price drops too low, it may trigger an automatic default. Nonetheless, we will continue to offer loans without price observation, giving users the option to choose the mechanism that best suits their preferences.
Borrowers now have the ability to select the type of default mechanic that aligns with their risk tolerance and financial goals. Auto-liquidation loans offer significantly reduced interest rates, making them ideal for short-term borrowing or trying out new NFT collections. Despite the lower rates, borrowers still retain the full utility of their NFTs during the loan period.
Lenders also benefit from the auto-liquidation option, as it offers them the opportunity to earn a yield on NFT loans with added principal protection. Since NFTs are volatile and illiquid assets, an automatic default process ensures the principal is protected by selling the NFT if its price nears the loan amount. Unlike other platforms that rely on auctions, Cyan’s innovative oracle system ensures a fair market observation, taking into account the liquidity and bid depth of the NFT collection to safeguard both parties.
How to turn on Auto-Liquidation as a borrower
Enabling auto-liquidation when starting a loan is straightforward. Simply toggle the “Auto-liquidations” switch to on, and you’ll be able to compare the interest rates between straight loans and auto-liquidation loans.
How to stake into the Auto-Liquidation vault as a lender
To stake into vaults that support this feature and earn yield, head to the Lend page on Cyan and select an Auto-Liquidation vault. You can then choose how much ETH, USDC, or another native currency to stake.
Pros and Cons of Auto-Liquidating Loans
When choosing a loan type, it’s important to understand the trade-offs between straight loans and auto-liquidation loans, especially in the context of NFT financing. Each option offers distinct advantages and disadvantages depending on factors like interest rates, repayment flexibility, and the impact of price fluctuations on the underlying asset. Below, we explore the key pros and cons of these two loan types to help borrowers make informed decisions based on their needs and risk tolerance.
Straight Loan
Pros:
- The asset price can be ignored during the loan period, meaning price fluctuations of the NFT don’t affect the loan.
Cons:
- Higher interest rates compared to other loans.
- While early repayment in short-term bullet loans may receive a discount, longer-term loans only offer minimal interest discounts on early repayment.
Auto-liquidation Loan
Pros:
- Significantly lower interest rates, making it ideal for shorter loans where quick liquidity is needed.
Cons:
- The loan is tied to the asset’s price in real-time. If the NFT’s value drops to the Loan-to-Value (LTV) ratio, the loan defaults and the NFT is automatically liquidated.
In Summary
Cyan’s innovative loan structures, including both straight and auto-liquidation loans, provide borrowers and lenders with flexible and tailored options to meet their financial goals. Borrowers can choose the loan type that best suits their risk tolerance, balancing lower interest rates with potential liquidation risk or opting for a safer route with a slightly higher cost. For lenders, the auto-liquidation vaults offer an attractive way to earn yields while minimizing risk through principal protection. As the NFT lending space evolves, Cyan continues to lead the way by creating solutions that benefit both sides of the market, ensuring fairness, security, and accessibility for all participants.