Lender risks and mitigations

As in traditional finance, lenders look for earning opportunities accepting the risk that the loan could not be repaid in time.

Therefore it's important to understand that the lender could lose the lent amount of ADA if the borrower doesn't pay back. If that happens, as compensation the lender is able to claim the NFTs used as collateral.

The FluidTokens platform incentivizes users to lend as they don't pay any fee to the platform itself: lenders already take the risk so only the borrowers pay the small platform fee when they repay the loan.

That said, please remember that a small amount of ADA is needed to accomplish any Smart Contract action on the Cardano blockchain.

Before accepting any loan, lenders must check every policyid of each NFT locked as collateral. Even if FluidTokens provides much information about each NFT, it's mandatory to do your own research on the NFTs.

The DeFi approach guarantees that the platform cannot interviene at all, therefore the respnosibilities are on the users.

Another important factor to consider is the expiration time of the proposed loan: if the NFTs used as collateral drop in value, lenders will have to wait the end of the loan to claim them and eventually sell them on a marketplace.

Finally, lenders shall know the instrinsic risks of DeFi.

Borrower risks and mitigations

Borrowers request ADA from lenders to use it in any way they prefer (investing, trading, staking, arbitrage and more) and promise to repay the debt with an additional interest. To give some guarantees to the lender, the borrower locks one or more NFTs in the FluidTokens smart contract as collateral for the loan.

The borrower doesn't risk anything, except eventually losing the locked NFTs if he doesn't repay the debt + interests before the expiration date.

When the borrower repays the loan, he also has to pay a small platform fee: the current amount is 2.5% of the originally required ADA amount. If this value is lower than 1ADA then the platform fee is set to be 1 ADA.

Finally, borrowers shall know the instrinsic risks of DeFi.