Get liquidity from your Basis NFT
Basis Markets partnered with FRAKT, a Solana protocol that allows users to take loans using their NFTs as collateral.
Basis Markets partnered with FRAKT, a protocol on Solana that allows users to take loans against their NFTs. It's a way to get liquidity out of NFTs, as users can borrow assets using their NFTs as collateral.
Note: the Basis NFT can be bought on Magic Eden, SolSea and OpenSea.
What is FRAKT?
FRAKT is a DeFi x NFT protocol that makes NFTs liquid, safe and accessible to users.
The project launched on 07 June, 2021, as an NFT collection. Magic Eden didn't exist at the time and Phantom didn't yet have a way to show NFTs in users' wallets.
In October that year, FRAKT launched staking and in November 2021, fraktionalization (they assure us that's the spelling we should use). Later they merged with @pawnshopgnomies, a protocol that issued the first on-chain loan backed by a Solana NFT. That merger augmented their platform and unlocked NFT liquidity capabilities.
What does FRAKT provide?
- loans - borrow against loaned NFTs.
- pools - buy, sell and swap NFT or pool tokens
- fraktionalization - split single or multiple NFTs
The Basis NFT is required to access the Basis Trade Engine (BTE) and has an important role in the dashboard being built to facilitate basis trades on exchanges. This partnership with FRAKT gives the Basis NFT extra utility, as it can be used to get liquidity for other ventures. It’s not just Basis: FRAKT supports other NFT collections.
Probably the most useful service for NFT owners is loans. FRAKT allows you to get loans against your NFT for which you can borrow assets using it as collateral. It's a way to get liquidity out of stale NFTs sitting idle in a wallet. Similar to other services, when the loan is paid, the user gets their NFT back.
Let’s look at the three main features of FRAKT.
1. Loans
When loaning, the NFT doesn’t leave the user’s wallet. This means the user doesn’t miss out on snapshots or DAO votes if it is done via NFT. Some DAOs vote via token, others via NFT — at Basis Markets, only NFT owners can vote in DAO proposals.
FRAKT shares 50% of loan profits with the collection. This means that every loan taken on frakt.xyz/borrow is also a contribution to that DAO. If you lend your Basis NFT, you would be contributing to the Basis DAO.
Holding 1 gnomie (one of their two collection NFTs) and every 10 frakt points discounts 1% from the loan interest fee. So if a user has 100 gnomies = 1000 frakt points = 100% discount, which means the loan is free (no interest).
2. Pools
FRAKT’s lending pools allow users to give their NFTs to a pool for liquidity. More specifically, with pools, users can buy, swap, sell and earn.
Buy: exchange SOL (or other pool asset) for one random NFT in the pool. Why would someone buy from their pool? Because the buy price here could be lower than the marketplace's floor and maybe has other interesting NFTs to choose from.
Swap: for a small fee, the user can exchange one of their wallet NFTs with a Pool NFT. It’s as if it were a re-mint and it can be repeated until the one NFT the user wants lands.
Sell: when an NFT is sold to the Pool, the user gets the pool’s token in exchange. It can then be 1) converted to SOL to add to the user’s liquidity or 2) stake it.
Earn: tokens can be staked to receive emissions. With enough tokens staked for a long enough period of time, the user can exit the pool with more NFTs than the one(s) they started with. Or the pool tokens can be swapped for more SOL.
3. Fraktionalization
Fraktionalizing an NFT is the process of locking an asset in a digital vault and tokenizing it for distribution. It’s a way to give users a virtual piece of an immutable product.
Users can fractionalise single or multiple NFTs (baskets) and trade them. This is possible with FRAKT’s vaults. A vault is the entity or process that locks the NFT, issues the tokens linked to the fraktionalization and manages its buyout. The fractions can then be sold, distributed to communities or given as liquidity to earn trading fees.
The vault page has three features: trade, swap and buyout.
Trade: ability to view and place orders from DEX for trading.
Swap: ability to swap tokens to SOL and vice versa.
Buyout: ability to start a buyout process.
How to get more out of the Basis NFT
This article described what users can do with their NFTs on FRAKT’s website: loaning, pooling and fractionalising them.
Probably the simplest way to get more out of the Basis NFT would be to use FRAKT’s loaning feature and borrow against it. The user then has liquidity for other ventures and it’s a good way to learn about the platform.
How to loan on FRAKT?
- go to https://frakt.xyz/loans;
- connect your wallet;
- select NFT to use as collateral;
- borrow desired amount
Take notice of the interest rate to pay it back in time.
Risks
None of the information contained in this article is financial advice. This article is for education and entertainment purposes only.
As with other financial activities, there are risks involved. specifically: protocol risk and liquidity risk.
The risk assessment considers market and smart contract risks for the NFTs available to be used in the FRAKT protocol and the processes in place to mitigate these risks.
Protocol risk
NFT holders are able to participate in the DeFI ecosystem with FRAKT. Even though the protocol has measures to safeguard its solvency, the protocol is still exposed to financial contagion.
To ensure a collection holds a reasonable amount of risk, the protocol goes through two parameters: trade volume (number of sales) and asset value (average asset sales value). The protocol also has dynamic caps on collection tiers so that only a limited amount of NFTs from a collection can be accepted as a collateral at the same time.
FRAKT has not yet been audited, but they are scheduled with Certik and Hacken to audit their Pools and Loans protocols.
Liquidity risk
There is a risk of liquidity as FRAKT is an NFT liquidity and lending protocol that enables borrowing SOL from the liquidity pools.
The liquidity in the protocol amounts to the availability of the capital in it for business operations: borrowing amounts and redeeming SOL. Without liquidity, there are no business operations. Liquidity of the protocol can be checked by its utilisation ratio: the share of assets currently borrowed.
Liquidity risk in FRAKT is managed/mitigated by its interest rate model in order to incentivise users to support stable liquidity, specifically:
- When capital is available, interest rates are low to encourage users taking loans;
- When capital is scarce, interest rates are high to encourage users repaying loans and additional deposits.
Useful links
What is the FRAKT protocol? - frakt.xyz
DeFi x NFT: The FRAKT protocol | by FRAKT HQ | Medium
Loans: https://twitter.com/FRAKT_HQ/status/1527740975619129351
Pools: https://twitter.com/FRAKT_HQ/status/1513890743982698504 and https://twitter.com/FRAKT_HQ/status/1503735365508943876
Fraktionalization: https://docs.frakt.xyz/frakt/vaults-fraktionalization/fraktionalize-your-nft