Defaults

When the borrower doesn't repay the lender.

How defaults work

When a loan duration has been exceeded and the borrower did not repay the loan + interest to the lender, the lender gets the option to collect the NFT. The lender has the option to keep the loan open for longer giving the borrower more time to repay.

This mechanic brings both opportunity and risk to the lender. When the floor price of the NFT is higher than the loan, the lender might make a bigger profit on selling it or they acquired the NFT below market prices. On the flipside when the floor price is lower, they risk losing out on both the interest but also might be unable to recover 100% of the SOL of the loan. It’s important to be mindful of this when offering a loan.

The opportunity for the borrower is to borrow a certain amount of SOL and the ability to either pay back or let the loan default. The floor price might have fallen below the loan price which means the borrower can keep the SOL and buy back the NFT for less, making a profit of the difference. Or the borrower can decide to keep the SOL and treat the loan as a sale of the NFT at a better price.