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.

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