The method Spice uses to handle collateralized NFT liquidations depends on the liquidation engines of the underlying NFT lending marketplace.
Fig. 2: Visualizes movement of assets through Spice’s liquidation engines.
Spice’s liquidation engine is triggered when the borrower defaults on their P2P loan (e.g., when repayment isn’t made by loan maturity). When a default occurs on a Spice P2P loan…
- 1.Spice will list the collateralized NFT through Reservoir to all available marketplaces (OpenSea, LooksRare, etc.) at 1.1x the repayment value of the defaulted loan.
- 2.If a bid comes in equal or higher than that price, Spice will accept that bid and liquidate the asset.
- 3.Otherwise, Spice will continuously re-list the NFT at 99% of the price in the previous listing every 3 hours until the NFT is sold.
- 4.Revenue earned from the liquidation event is distributed amongst Spice Vault LPs.
P2Pool protocols implement their own liquidation mechanisms. At a high-level, most P2Pool liquidation engines work similarly to Spice’s liquidation engine. When a borrower defaults on their P2Pool loan (e.g., when the value of the collateralized NFT falls below its strike price)...
- 1.The P2Pool protocol liquidates the collateralized NFT through a custom fixed length auction.
- 2.The P2Pool protocol distributes the revenue earned from the liquidation event amongst relevant vault LPs (one of which is Spice).
- 3.Spice receives funds from the P2Pool liquidation event.
- 4.Spice then distributes the funds amongst Spice Vault LPs.