Disclaimer: Any valuation metric on flowty is not financial advice and is derived from third-party estimations and metrics that themselves do not represent financial advice or the actual expected LTV
Last updated
Original post (March 24, 2022)
Introduction
Flowty has just added an exciting new feature to the platform. Users browsing the site will now see the MomentRanks Loan-to-Value (MR LTV) metric on Top Shot listings. This upgrade provides our users with more information directly on the platform to guide decision-making, leading to a more convenient and informed experience.
What is LTV?
LTV is a percentage or ratio that is calculated by taking the loan amount divided by the estimated value of the underlying asset. This can be a useful metric for Lenders to measure risk and for Borrowers to choose listing parameters.
For example:
The above screenshot (Kevin Durant Run it Back #80/209) is from the flowty marketplace
Loan Amount = $11,086.64
MomentRanks Value (at the time of writing) = $20,999.00
LTV = 53% (Loan Amount / MomentRanks Value)
How users can think about and utilize LTV
Borrower has an NFT that is valued (by MomentRanks or by Borrower perception) at $100. Borrower would like to borrow $40. The LTV of this loan would be 40% ($40 / $100).
A simple way to think about a 40% LTV is that if the value of the underlying collateral falls by less than 60% (100% minus LTV of 40%), ignoring fees and royalties, the Lender will likely be able to recover most or all of his capital in a default scenario. There are other considerations (interest accrual, illiquidity of market for underlying collateral, volatility, duration of loan, etc), but this is a simple technique to quantify the amount of cushion that a Lender has on his loan.
Loans on safer assets (like real estate) often have higher LTVs (as high as 75–90%). Volatile or risky assets, such as NFTs, may require lower LTV loans to balance a Lender’s risk.
How do we determine the value of a Top Shot Moment?
Our friends at MomentRanks have a fantastic platform with analytical data on NBA Top Shot moments as well as other collections including Doodles, BAYC, Azuki, and many more.
One of MR’s most widely used features is a valuation model that provides an estimated value for any Top Shot Moment. MomentRanks recently updated their model to better determine values from historical data, quantify the importance of different serial numbers, and protect their valuations from manipulation or inaccuracies for illiquid Moments.
Why the inclusion of LTV is such an exciting feature for flowty
For the reasons highlighted above, LTV is an important metric for Lenders when evaluating a loan listing. Similarly, Borrowers can consider the LTV when creating a listing to help determine what loan terms might be attractive to a Lender. Previously, Borrowers and Lenders operated with less than full information or would have had to take the extra step of determining the value of an NFT and calculating the LTV themselves for each listing they were considering.
Adding the LTV directly on the flowty platform for each listing gives Borrowers and Lenders this information at a quick glance, saving some steps and making the process more efficient.
What does the LTV mean to a Lender?
A listing’s LTV can be one of the metrics Lenders use to quantify and measure the risk of a loan. Because flowty offers loans secured by NFTs (collateral), a Lender can focus on the collateral itself rather than the counter-party (Borrower) when considering the risk and implications of a default. It is important to note that Lenders should consider many factors when determining risk or attractiveness of a loan listing, and LTV is just one of the tools available to aid in this determination.
How can Borrowers use LTV when creating a listing?
In addition to displaying the MR LTV on marketplace listings, flowty also includes the metric in the listing creation process. Borrowers can leverage this information and consider what terms may be more attractive to Lenders.
In general, the lower the LTV, the more attractive a loan is to potential Lenders, though there are also other factors that can affect the attractiveness of a listing. Seeing the LTV of recent successfully funded loans may offer a guide as to where the current lending market stands on risk evaluation for similar NFTs.
How we will use LTV going forward on the platform
Adding MR LTV as an available metric is an important first step. We plan to add LTV to sorting/filtering on the marketplace in the near-term, so Lenders can more easily browse loans that meet their criteria. We are also planning to add additional reputable sources for NFT valuations of additional collections we support to offer a broader range of valuation approaches and options for our users.
Where to Find Us
Product Docs (FAQ, Step-by-Step Guides, etc)
