Liqd allows NFT holders to borrow money by using their assets as collateral. The platform's escrow system is designed to protect both borrowers and lenders and ensure that the terms of the loan are fulfilled. This article will explain how Liqd’s escrow system works.
Liqd uses an escrow system as a way to protect both borrowers and lenders when an NFT is used as collateral for a loan. The escrow system is implemented via smart contract, which is a program that is executed on the blockchain and that enforces the terms of the loan.
When a borrower requests a loan, the lender can review the details of the loan and decide whether to approve or reject it. If the loan is approved, the borrower must send their NFT to the escrow smart contract. The loan funds will also be transferred to the escrow smart contract before being sent to the borrower. This way, the NFT and the loan funds are both held in escrow and serves as a receipt of the transaction.
As long as the loan is active, the NFT will be locked within the smart contract and it will no longer appear in the borrower's wallet. The borrower will have access to the loan funds and will be responsible for repaying the loan and the agreed interest by a certain date.
Once the loan is successfully repaid, the NFT and the repaid loan funds will be released from escrow and returned to the borrower. If the borrower defaults on the loan by not repaying it on time, the lender can request the NFT from escrow, known as liquidation. This allows the lender to recover the value of the loan from the collateral.
In summary, Liqd's escrow system using smart contracts is a secure and transparent way of managing NFT-backed loans, ensuring that the terms of the loan are fulfilled and protecting both borrowers and lenders in the process.
