V3 Protocol Upgrade

Overview

The purpose of this upgrade is to:

• Introduce flexible (pro-rata) asset and collection loans

• Improve ergonomics for approving NFT and ERC20 transfers

• Enhance gas efficiency

Key Changes

Offer Schema Modifications

• Fields Removed:

  • loanAdminFeeInBasisPoints

  • referrer

  • LoanContract

• Fields Added:

  • bool isProRata

  • uint16 originationFeeInBasisPoints

  • OfferType: "Regular" | "Collection"

Pro Rata Interest (isProRata)

• False: Fixed interest is paid on repayment (standard NFTfi loans).

• True: Interest is pro-rated; less interest is charged the earlier the loan is repaid.

Origination Fee (originationFeeInBasisPoints)

• Purpose: Balances the risk for lenders in pro-rata loans.

• Application: Subtracted from the loan principal before transferring funds from the lender to the borrower.

• Effective APR: A new APR concept that calculates based on the principal plus the origination fee.

• Note: Origination Fee is independent of the isProRata setting.

Admin Fee Handling

• Removal from Offer Schema: The adminFee is no longer part of the Offer.

• Loan Contract Admin Fee:

  • Captured when the loan starts and applied upon repayment.

  • This change implies that lenders are no longer guaranteed a specific adminFee, but this is now managed by the NFTfi Foundation's smart contracts.

Removal of Referrer

• The referrer field was underutilized and is now removed from the Offer schema and smart contract logic.

Offer Types

• New Association: Offers are now associated with an OfferType rather than a Loan Contract.

• Loan Coordinator Role:

  • Specifies which Loan Contract handles a given OfferType.

  • Supports multiple Loan Contracts, though one default handler is specified.

Optional Promissory Note

• Prom Note Flexibility:

  • The Promissory Note (Prom Note) is now optional, similar to the existing Obligation Receipt.

• Loan Lender Definition:

  • If no Prom Note exists, the original lender remains the lender.

  • If a Prom Note is minted, the current owner of the Prom Note is considered the lender.

  • Only the original lender can mint a Prom Note.

New Loan Coordinator

• Reason for Change: Modifications, such as the optional Prom Note, required changes to the loan coordinator.

• Unique IDs: Compound loan IDs can be considered unique across loan coordinators.

• New Contracts: New ERC721 contracts have been introduced for the Prom Note and Obligation Receipt.

Detailed Schema Comparison

Previous Offer Schema

struct Offer {
    uint256 loanPrincipalAmount;
    uint256 maximumRepaymentAmount;
    uint256 nftCollateralId;
    address nftCollateralContract;
    uint32 loanDuration;
    uint16 loanAdminFeeInBasisPoints;
    address loanERC20Denomination;
    address referrer;
}

Updated Offer Schema

struct Offer {
    uint256 loanPrincipalAmount;
    uint256 maximumRepaymentAmount;
    uint256 nftCollateralId;
    address nftCollateralContract;
    uint32 loanDuration;
    address loanERC20Denomination;
    bool isProRata;
    uint16 originationFeeInBasisPoints;
}

Lender signatures

In the previous protocol version (V2), lender signatures included a combination of:

• Offer

• Loan Contract

In the updated protocol version (V3), lender signatures now encompass a combination of:

• Offer

• Offer Type

The process of constructing a lender signature in protocol V3 is as follows:

function getLenderSignature(
 lender: SignerWithAddress,
 loanPrincipalAmount: bigint,
 isProRata: boolean,
 maximumRepaymentAmount: bigint,
 nftCollateralId: bigint,
 loanDuration: bigint,
 nonce: bigint,
 nftCollateralContract: string,
 loanERC20Denomination: string,
 expiry: bigint,
 offerType: string,
 originationFee: bigint,
) {
 const chainId = mainnet;
 return lender.signMessage(
   ethers.getBytes(
     ethers.solidityPackedKeccak256(
       [
         'address',
         'uint256',
         'uint256',
         'address',
         'uint256',
         'uint32',
         'bool',
         'uint256',
         'address',
         'uint256',
         'uint256',
         'bytes32',
         'uint256',
       ],
       [
         loanERC20Denomination,
         loanPrincipalAmount,
         maximumRepaymentAmount,
         nftCollateralContract,
         nftCollateralId,
         loanDuration,
         isProRata,
         originationFee,
         lender.address,
         nonce,
         expiry,
         offerType,
         chainId,
       ],
     ),
   ),
 );
}

Implementation Considerations

For Developers

• Migration: Ensure that offers are compatible with the new schema.

• Promissory notes We can no longer assume that a Prom Note exists for a loan, the lender has to mint it on demand

For Lenders

• New Origination Fee: Understand the implications of the origination fee, especially when offering pro-rata loans. The fee will be automatically deducted from the principal

• Effective APR: Be aware of the new APR calculation that considers the origination fee, which could affect your returns.

For Borrowers

• Pro Rata Loans: If opting for a pro-rata loan, note that early repayment will minimize interest costs.

• Origination Fee: Note that the origination fee will be deducted from the loan amount you receive.