SDIP-38: Art Blocks Curated Lending Program

Brief Authors: NiftyFifty
Project lead: NiftyFifty
Squad: Acquisitions
Creative approval: N/A

Abstract

It’s been more than 8 months since the DAO started its lending activity. So far we have deployed 250 ETH in manual and automated lending, issued 42 loans, and generated a profit of more than 30 ETH with all the matured loans being profitable (i.e. either repaid or defaulted in the money). The annualized yield is around 50%.

With these results, we want to take another step in expanding the lending activity and propose authorizing 100 ETH for manual loans backed by other Art Blocks Curated collections + Meridians (we would like to exceptionally include Meridians as it is at a similar level than most Curated collections and there is significant lending activity).

The Acquisitions Squad will have discretion over both loan terms and the listings/sales of any foreclosed pieces. We will record all data separately so we can measure the individual performance of this program.

Motivation

Our focus is and will always be the Squiggle, but the experience and knowledge acquired in Squiggle lending will make us competitive in lending on more Art Blocks Curated collections.

By issuing loans backed by other Art Blocks Curated collections, we remain on-brand and achieve three key goals:

  1. We generate revenue that we can then redeploy to buy more Squiggles, sustain DAO operations, organize events, etc
  2. Support the wider AB ecosystem. Art Blocks and Squiggles are joined at the hip, one needs the other to succeed
  3. Widen our moat as competitive lenders in particular and experts in NFT DeFi in general

As already mentioned, this SDIP is to keep building our lending activity that the DAO has been pursuing for some time. Please see previous SDIPs for further details:

  • SDIP-22: NFTfi Lending/Borrowing Program
  • SDIP-24: Additional funds for NFT lending
  • SDIP-28: NFT Lending Expanded Program
  • SDIP-30: NFTfi Lending bot MVP
  • SDIP-34: NFTfi lending bot Expanded Program

Finally, NFTfi has confirmed a token airdrop. This activity will increase the probability of us being included in any potential airdrop.

Success Conditions

  1. Generate revenue for the DAO. This might be in the form of yield (if loans are repaid) or in the form of profit when selling the foreclosed NFT (if loans default). Note that we don’t expect -or need- all defaults to be profitable, but on average we do need to be profitable for this program to be considered successful
  2. Generate a 20%+ Internal Rate of Return with this program (this includes profit from defaults and yield earned on repayments)

Risks / Risk Management

As with any investing strategy, there are some risks involved:

  • Smart contract risk: the most important risk we are assuming. It is limited as there has been $300M of loan volume on NFTfi so far (with collaterals such as AB Curated, CryptoPunks, Autoglyphs, etc.) with no significant issues
  • Market risk: if the floor drops below our loan value and the loan defaults, we would be acquiring a piece at a price above market. We would record this loss and keep track of the overall performance of the program, as previously mentioned, we don’t need all loans to be profitable for the strategy as a whole to be considered successful
  • Concentration risk: we will monitor concentration in terms of counterparties and maturities. Being the latter especially relevant as if there is a sudden drop in prices, most loans maturing around that date could default
  • Credit risk: obviously limited by the collateral

It is important to mention that, in addition to the above risks, there is an opportunity cost as we will be using some ETH, but this is limited as -at this stage- we would not be using that money otherwise.

Specification

  • We will focus on NFTfi as it’s the platform with the most lending activity in Art Blocks Curated collections
  • We will set up a new wallet “ABC Lending” controlled by NiftyFifty specifically for this activity
  • It will be a hardware wallet as multisig wallets are not yet available
  • ABC Lending wallet will be funded with ETH from the Treasury
  • The Acquisitions Squad will have discretion over loan terms
  • Loan offers can be made on any Art Blocks Curated collection + Meridians
  • Performance of the program will be periodically reported to the DAO
  • We will sell any foreclosed pieces at the discretion of the Acquisitions Squad
  • If an NFTfi airdrop does occur, a vote will be held in the “ongoing-votes” channel in Discord to decide whether to sell or keep the tokens

Launch Details

Project will be launched according to the specifications above, at the timing and discretion of the operators.

Costs

100 ETH (though some or all of this could return back to the treasury depending on the outcome of the lending activity).

Rewards

N/A

2 Likes

I’m in favor of this plan. Lending against squiggles has been a great success, and expanding the lending footprint will hopefully produce some revenue that we can redeploy into operations.

My only thought is, I think part of our success with squiggle lending is our expertise. There are a lot of curated projects, and realistically we can’t be experts in all of them. Does it make more sense to narrow our focus on a few of the projects with higher volume?

Thanks for the comment, cheese.

There is a lot of competition in the top ABC collections (i.e. ringers, fidenzas, anticyclones, etc.), smaller ABC collections give us some opportunity for loans with a bit less competition (which translates into better terms for us).

There is a negative side though, it is a very hands-on time-consuming approach. Let’s experiment and depending on results, we can focus on less collections or build bots.

Obviously, we’ll keep monitoring and measuring performance to iterate into the optimal strategy.

Gm, am new here and new to generative art! A bunch of us collectors of friendship bracelet, also an artblock project. We would love to explore setting up a similar DAO and even explore this nft lending feature together