Frequently asked questions about the Pawn Protocol powering Arcade

What is the Pawn Protocol ?

The Pawn Protocol is an open source and non-custodial liquidity protocol for loans backed by non-fungible tokens, or NFTs.

What is Arcade ?

Arcade is a platform that enables decentralized, peer-to-peer lending and borrowing on the Ethereum blockchain.

Why did we build the Pawn Protocol ?

The Pawn Protocol combines decentralized finance and NFTs. As DeFiDeFi - Decentralized Finance early adopters we noticed that crypto lending markets existed for fungible digital assets, but were largely undeveloped in non-fungible crypto markets. Our thesis is that NFTs will serve as the crypto native primitive for all kinds of digital property assets in the future and that a functioning credit market will be needed to serve the asset class.

How does the protocol work ?

NFT collectors can request loans against one or more of their NFT assets to be fulfilled by lenders via the Arcade app. First, connect with Metamask, select assets as collateral, then request a loan with specified terms.

What assets can be used as loan collateral ?

The protocol currently supports the use of ERC20 tokens and NFTs from select ERC721 and ERC1155 collections as loan collateral. Additional Ethereum based collections and projects will be supported over time. For a complete list of collections currently supported by Arcade, see Collections Supported.

What tokens can be borrowed ?

All ERC20 tokens are supported included wETH, USDC, DAI.

What is a wNFT ?

A wrapped NFT, or wNFT, contains the borrower's loan collateral and is used when requesting a loan. When a user selects a single or group of NFTs as collateral they will be wrapped in new NFT (wNFT).

What happens when a loan is filled ?

The wNFT for the loan is time-locked in an escrow smart contract. Funding principal is sent to the borrower and loan notes are issued giving claim rights to both sides of the loan.

Does the Pawn Protocol margin or liquidate under any conditions ?

There are no liquidations or margining capabilities in the protocol currently.

What are the fees ?

Borrower pays flat 2% of principal on every loan originated at the time of origination.

What are the risks ?

The Pawn Protocol is an experimental platform provided "AS IS" without warranties of any kind. Use of the platform, Arcade app, or smart contracts is at your own risk.