Papr: An innovative NFT lending protocol that issues loans in tokenized form
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Papr: An innovative NFT lending protocol that issues loans in tokenized form
The project, developed by the Backed team, differs from other NFT lending systems that are peer-to-peer or peer-to-pool, as it is more akin to a token-to-token approach.
Navigating Web3 tides with focused insightsWritten by: William M. Peaster
Compiled by: TechFlow
Papr is an innovative NFT lending protocol distinguished by being a DeFi project built on Uniswap. Developed by the Backed team, unlike peer-to-peer or pool-based NFT lending systems, it operates more like a point-to-token approach. Let’s dive into this NFTfi project and its new interface!
What is Papr?
Papr is an emerging NFT lending protocol developed by Backed that allows borrowers to use NFTs as collateral to issue loans in the form of Papr (“perpetual APR”) tokens.
Borrowers can trade these tokens on decentralized exchanges (such as Uniswap), for example to obtain ETH liquidity, thereby creating a continuous feedback loop between the Papr trading price and the protocol interest rate.
For lenders and/or liquidity providers, Papr tokens offer a simple, low-maintenance way to gain exposure to loans across multiple NFT collections. The first Papr token, $paprMEME, already covers 20 popular collections—and that number continues to grow.
Thus, the protocol provides instant loans for NFT owners and immediate exposure for lenders, with fluctuations in the $paprMEME price reflecting both the borrowing cost for borrowers and rewards for $paprMEME holders.
How Does Papr Work?
Unlike peer-to-peer or pool-based lending systems, Papr is a unique NFT lending protocol where the smart contract determines borrower interest rates based on market prices. From this perspective, Papr functions more like a "point-to-$papr token" model.
As such, accrued interest is compensated through the appreciation of the $paprMEME price, establishing a continuous interaction between the Papr trading price and the protocol interest rate. As the value of $paprMEME fluctuates on Uniswap, interest rates adjust accordingly, allowing borrowers to create and close loans as needed.
Since interest is paid via the value growth of $paprMEME itself, new borrowers will receive fewer tokens over time for the same amount of collateral. When closing a loan, borrowers must repay the exact amount of $paprMEME originally borrowed, but due to accrued interest, the market value of $paprMEME may have increased since the loan began.
Note that Papr loans have a maximum loan-to-value (LTV) ratio of 50%, meaning total debt cannot exceed half the floor value of the collateralized NFT. For instance, if a Fini NFT has a current floor price of 0.15866 ETH—as shown below—the maximum I could borrow would be 0.08027 $paprMEME, given that 1 $paprMEME token is currently trading at 1.012 ETH.
The collateral value is calculated via oracles using a 30-day time-weighted average floor price. If a loan exceeds the threshold, the NFT collateral may enter a Dutch auction, starting at three times the NFT's floor value and decreasing by 70% daily. Proceeds from the auction are then credited to the borrower's account.
User Experience Update
On May 15, Backed launched a new, user-friendly Papr borrowing experience. The new interface features a guided walkthrough using a fictional Toad NFT, simplifying the entire Papr loan process.
Once you connect your wallet to the platform, Toad will guide you step-by-step through five stages. You can then select a supported NFT to use as collateral and decide how much to borrow. Toad will also alert you about your position's risk level:
After selecting your collateral and loan amount, click the “Borrow” button, confirm the transaction in your wallet, lock up your NFT, and receive $paprMEME tokens—which you can then trade for ETH or other assets as desired. However, if your loan remains unpaid, it will eventually be liquidated and your NFT auctioned off!
Summary
Papr is a relatively new but compelling player in the NFT lending space. As a small startup project, it has carved out a unique niche through its innovative "point-to-$papr token" approach, offering a dynamic, market-responsive protocol for NFT lending.
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