Loan & Marketplace Selection

Marketplace Selection

Spice Vaults currently integrate the following NFT lending marketplaces:
  1. 1.
    NFTfi (P2P)
  2. 2.
    Arcade (P2P)
  3. 3.
    X2Y2 (P2P)
  4. 4.
    BendDAO (P2Pool)
  5. 5.
    DropsDAO (P2Pool)
At the highest level, decisions on integration of future NFT lending marketplaces will be based on community feedback as well as the lending opportunities available on the marketplace and availability of automated lending infrastructure.

Loan Pricing, Portfolio Creation and Execution

Optimal APRs for loans and loan pools are algorithmically determined based on the Black & Scholes Options Pricing model, with appropriate adjustments for NFT collateralized lending.
Currently, historical NFT prices are used to determine the volatility of loan values and correlations. Historical volatility is derived from historical floor prices and historical appraisal prices.
An optimal portfolio distribution is algorithmically determined based on Modern Portfolio Theory with appropriate adjustments for NFT collateralized lending that account for liquidity, asymmetric payoffs, and tail-risk events.
To maximize efficiency, Spice’s computationally heavy NFT and options pricing models are executed off-chain, while user funds are stored and transferred non-custodially on-chain.

P2P Loan Bidding

The Prologue and Flagship Vaults route capital to a “Base Vault” that runs a bidding strategy for P2P NFT loans with constraints on LTV and minimum acceptable APR.
Maximum loan amounts are determined algorithmically using price drawdown and appraisal model error at the time of bid.
Please refer to the following :
floor_drawdown = max historical drawdown of floor price w/ duration as window
appraisal_drawdown = max historical drawdown of appraisal price w/ duration as window
floor_limit = floor_price * (1- floor_drawdown)
appraisal_limit = appraisal_price * (1 - model error) * (1 - appraisal_drawdown)
limit = max(floor_limit, appraisal_limit)
Where “limit” is the maximum loan amount that Spice’s protocol will lend to an outstanding loan.

Portfolio Rebalancing

To ensure the optimized risk-adjusted yields for Spice’s Flagship Vault depositors at all times, Spice rebalances liquid funds across marketplaces and loan pools (e.g., all funds except those locked up in P2P loans) on a daily basis.