Leveraged Lending

NEND lending is a peer-to-peer lending model where participants can loan out Pynths, stablecoins, and other assets for interest, backed by the tokenized asset as collateral. Lenders can leverage up to 3x of their assets to loan out to earn a higher interest lowering the risk by 1/3. This additional liquidity against the lenders’ collateral comes from the pool, i.e. a lender takes 3k pUSD in his pocket and borrows 6k pUSD from the lending pool, making a loan on the full amount the borrower takes, 9k. He pays back 6k pUSD to the pool when the loan is due and paid out, profiting up to half of the interest of the borrowed 6k from the pool. Given 10% interest, he can make 600 pUSD from the the loan.

If a lender doesn’t use the leverage, he can take the RWA when a borrower defaults by setting up the option.

When the loan is active, the RWAs stay in a ‘smart contract vault’ as escrow, which allows the lender to auction the RWA in the market when the loan falls into arrears or defaults. After underwriting the loan, lenders receive a promissory note in NFT form. These are tangible representations of the loan. Potentially those can be traded as an NFT similar to a credit default swap instrument, or they can be ‘traded’ or ‘staked’ for a return.