Fabrica Office Hours - Intro to Defi

Get cash FROM your land!

Traditionally it’s been difficult for borrowers to use land as collateral for loans. 

If you look at a land marketplace like Landsearch you’ll see over 300,000 properties available for sale across the US. Most of those don’t have access to affordable financing.

That’s changing today.

At Fabrica we’re starting to help unlock the true potential of land by making access to new capital easy for land owners.

How do we do this?

We help landowners digitize their property records on the blockchain as an NFT. This allows connections to “decentralized finance” (defi) platforms that enable frictionless borrowing and lending.

While this might be new to you, it’s not new to us. 

So here’s a few videos walking you through some of the basics of working with a Fabrica NFT on-chain in the defi space.

The first ever on-chain property loan.

The first ever defi loan on a property backed NFT was done with a Fabrica NFT and processed through NFTfi in 2021. NFTfi is one of the leading liquidity protocols for NFTs and allows NFT holders to borrow cryptocurrency from lenders by using their NFTs as collateral. The loans are peer-to-peer loans and in the case of the first loan the borrower & property was located in California while the lender was from South Africa.

What are some of the major benefits to financing a loan through a platform like NFTfi?

  1. The process was significantly quicker and more efficient than a traditional loan process. 
  2. The loan was backed by undeveloped land which is less common for traditional lenders to lend against. 
  3. Land owners now have access to lenders which they’ve never had access to before.

The Growth of on-chain lending

When this first loan happened NFTfi was just getting started and was one of the few platforms in the space.

Now we’ve seen the whole defi ecosystem expanding to include 20+ platforms with over $2b in loan volume on NFTs.

Common loan types

The two most common types of loans through defi are peer-to-peer and peer-to-pool.

In peer-to-peer lending a borrower and lender are generally two people. One of the parties proposes the terms of the loan and the other will accept it or propose different terms for the other to then accept.

In peer-to-pool lending the borrower generally accepts standard terms that a pool of lenders have created making the process potentially quicker as there is no negotiation or waiting for both parties to accept the terms.

How do you value a property?

Some of these defi lending platforms were initially designed for lending around art as collateral. In these instances the platform may look at the price of the cheapest NFT in that art collection to get a sense of price and set terms based on a % of that lowest price. This is often referred to as the “floor price”.

With a Fabrica NFT the floor price isn’t that useful as a Fabrica NFT represents property and not art.  With property you have to take into consideration the large differences between properties in terms of location, acreage and features.

With that in mind we look at historical records and valuation providers to provide an estimate of the property value as just one datapoint that people may want to consider when coming to terms of a loan.

Price Estimating

Our Price Estimate is just an estimate and it can serve as a guide for lenders to figure out what an appropriate amount is to lend.

Setting Terms

While there is an estimate provided, it’s ultimately up to the borrower and lender to come to terms that work for them. Fabrica is not involved with the formation of the loan or the terms of the loan.

How does Fabrica bring confidence to this market?

As we bring a property on-chain we perform a variety of validation checks to see if the NFT is correctly formed and linked to a property. Through our website, we show a Confidence Score which reflects these checks. 

Lenders should still perform their due diligence on the property that is being used as collateral.

How does the loan mechanism work?

During the duration of the loan, the NFT will move out of the borrower's wallet and into a smart-contract. 

When the borrower successfully repays the principal and the interest associated with the loan, the NFT will be returned to the borrower’s wallet.

What happens when the loan is not paid?

You should familiarize yourself with the terms and conditions set by the platform that the loan was facilitated through.

Some platforms will allow lenders to claim the NFT/Property if the borrower is in default. Before the lender claims the NFT, the borrower may still be able to pay the loan and interest and have the NFT returned to them.

The growth of on-chain lending

Ultimately, we are excited about the growth of new and existing lending platforms.

Where on-chain lending is going

Today across all platforms we are seeing $3-$4m in new daily loan volume. Additionally, over $2b in loans over the last 2 years which is amazing considering these markets did not exist before that.

If you have a piece of Land that you'd like to bring on-chain you can do so here.

If you don’t own a property, you can see some land that’s already an NFT here.

And to learn more about how Fabrica works you can review our docs here.