Liquidations

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.

P2P (i.e., NFTfi, Arcade, and X2Y2)

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. 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. 2.
    If a bid comes in equal or higher than that price, Spice will accept that bid and liquidate the asset.
  3. 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. 4.
    Revenue earned from the liquidation event is distributed amongst Spice Vault LPs.

P2Pool (i.e., Bend and Drops)

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. 1.
    The P2Pool protocol liquidates the collateralized NFT through a custom fixed length auction.
  2. 2.
    The P2Pool protocol distributes the revenue earned from the liquidation event amongst relevant vault LPs (one of which is Spice).
  3. 3.
    Spice receives funds from the P2Pool liquidation event.
  4. 4.
    Spice then distributes the funds amongst Spice Vault LPs.