According to a recent Twitter post by 0xngmi, the anonymous creator of decentralized finance (DeFi) project aggregator DefiLlama, the smart contract code for a novel nonfungible tokens (NFT) borrowing and lending protocol dubbed "LlamaLend" is near completion. The protocol aims to solve the problem of NFT holders needing to obtain liquidity when holding their digital collectibles and primarily targets small NFT collections. 

The project's LlamaLend GitHub page explains: "If a holder needs liquid money because a good opportunity has appeared, all they can do [now] is just sell their NFTs."

As per its GitHub page, LlamaLend will allow users to deposit their NFTs, get a signed price attestation from a server and borrow Ether (ETH) up to one-third of the NFT's floor value. Users can repay the loan anytime and would only be charged interest for the time used. The loan will bear fixed interest based on a pool utilization rate.

0xngmi writes that pools on LlamaLend won't have a built-in liquidation system. Instead, the liquidator is the owner of the NFT collection — they have the power to decide how to deal with bad debt. Examples include holding an auction for the NFTs, or extending repayment plans. Though, 0xngmi proposes an extra late fee that scales linearly by 100% of the borrowed amount every 24 hours to deter repayments.

The protocol will also use an oracle system with a single request to determine the NFT borrow price and none thereafter. 0xngmi explains that the move would be the most cost efficient for NFTs with very little borrowing volume as they do not need to update their prices on-chain constantly.

Related: Uniswap eyes NFT financialization, in talks with lending protocols

NFT lending protocols have recently suffered due to the bear market removing much of their liquidity. One project, BendDAO, became engulfed in a state of crisis after interest rates on borrowed loans skyrocketed, leading to many users simply opting to let go of their NFTs instead of paying back the loans, resulting in a spiral of bad debts.