Expected rate of return in NFT lending

[domainer]

Ok I'll get this started for you. What kind of return do you expect to earn in your NFT lending? And why

[sean3.eth]

There are some studies and blog posts about expected returns but I don't know how valid they are. For one thing, when I go on to the major nft loan aggregator sites, I see the following NFTs dominating: Milady, Azuki, Pudgy Penguin, DeGod, Elemental, BAYC, CloneX, etc etc. What they all have in common is that they are links to picture files. They're just digital collectibles. If a borrower defaults, the only option you're left with is to try and sell off the NFT on a secondary market. You can't use it for anything. So you're essentially betting that the future value of those collectibles is going to remain the same or go up. It's a risky proposition.

On the other hand, if your collateral is a .eth (an ENS name), you could also try and sell it but if there's no buyer or the price drops, you can also "use" it. It has utility. I don't know that anyone has ever done ENS loans at scale to be able to establish a predictable rate of return. Surely, many factors would come into play.

Back in the LendingClub and Prosper days, there were tales of investors earning greater than 10% annually by investing in the highest risk loans. This was back in an interest rate environment of 0% so that was considered incredible. These days, anyone can earn 5% just by putting money in a savings account so you definitely have to earn more than that.

One key difference between LendingClub and Prosper and the NFT p2p lending platforms is that the former capped APRs to 36% while the latter generally cap APRs at about 300%. If loans are originated at 300% APR consistently then one could weather a lot more defaults than they did with LendingClub and Prosper and still earn double digit returns each year.

With LendingClub and Prosper, if a borrower defaulted, the platform's collection team would start pursuing the borrower. If that didn't work, they referred it to an outside agency, and if that didn't work, they sued. Overall, investors often experienced small recoveries as a result of these efforts. Although LendingClub and Prosper loans were unsecured, the borrowers had their credit scores at risk, not to mention the stress of debt collectors contacting them. With an NFT loan default, there is no hit to the credit report nor old fashioned debt collectors. They can simply walk away from the collateral, which is something they have may have intended to do from the very beginning.

Ultimately, I think the only way interest in NFT/ENS based loans increases is if people are able to show a strategy that consistently generates a 10%+ annual return (and probably even higher). This could be through a combination of interest and monetization of collateral acquired through defaults. With the loans i've done so far myself, I don't think that I have any numerical return expectation. I'm more just experimenting to see what happens. Once I find my footing, I'll start devising possible strategies to generate a predictable return. I am hoping to avoid picture file NFTs because I don't want to play a digital collectible game. 

[domainer]

You've made a few references to using the collateral or monetizing it in a way outside of just selling it off, can you give a good example of how to do that? Let's say the .eth worked as a web domain, in such an example would that mean like building a website that you then tried to monetize just to try and recoup the loss on the loan itself? That sounds like it would be a lot of work. Generally, domainers just try to sell domains. Turning a domain into a profitable business sounds rather ambitious and time consuming and probably isn't what an NFT lender would think they are signing themselves up for. The objective would probably be a somewhat passive high return income stream. I'm just trying to play devil's advocate here. The .eth can't even be used as a website am I right, so what are you doing with it that it's somehow going to make you money?

[sean3.eth]

I think monetizing the names themselves is a key component because I would anticipate a good number of defaults. There will obviously be borrowers who view the transaction as a sale dressed up as a loan and will take any loan amount regardless of the terms if the loan amount is close enough or equal to their list price. So I would expect the ability to monetize the collateral without selling it to be integral to making this work.

I don't think it has to be a manual "build a business off the name" time consuming process. I think it can be somewhat automated. Although I admit I haven't fully flushed out this strategy, consider the fact that if a name like meatballs.eth was acquired in a default, that an indexable landing page of meatballs.eth.loan could be automatically repurposed to show monetizeable ads for the lender.

Combine that with

meatballs.eth.limo
meatballs.eth.xyz
meatballs.eth.co
https://profile.coinbase.com/meatballs.eth
https://warpcast.com/meatballs.eth

etc. etc.

What one gains is a wide range of digital real estate that can be customized from one central location, their ENS profile manager, which will then update it across the web. All these properties can be indexed by search engines to the point where if the name is unique enough, visitors might find it and interact with whatever call-to-action you've put there for them to find, which hopefully leads to monetization. It may not be enough to immediately recover the losses of a loan, but unique names could be put to use in such a way that every acquired name becomes a little piece of a revenue generating portfolio.

Of course this could be done now even without making any loans at all. Just buy names for $5 and start putting them to work. Nobody seems to do this. Maybe it's because it wouldn't work like I think, but also because the potential ROI per name is just too low to care about. For example, if you paid $5 for a name and you were able to generate $100/year in ad revenue or affiliate marketing revenue with it, many people would say it's just not worth the effort. Might it be if it was an automated process?

If a $300 loan default turned into acquiring an ENS name that generated just $50/year in ad revenue, then there is not only a path to recovery without needing to liquidate, but also a new value proposition if selling the name ultimately became the course you chose to take.

I think a good experiment that any .eth owner/investor/lender/flipper or whatever could be is how to make as little as $100/year from web-based advertising/affiliate link marketing/etc with one. That is probably something I should do myself as well.

[domainer]

Thank you for this explanation. Let's put lending on the backburner for a moment and talk this through. So what you are saying is that sites all over the web are already pulling data from the ens manager and indexing  pages related to each .eth user in search. In doing so, the ens manager becomes the central control system for a vast amount of digital billboards across the web? The name.limo site and coinbase wallet and even your own example of name.eth.loan become like giant ad space for the owner of the .eth name.

I'm trying to wrap my head around this. So a hypothetical loan made against meatballs.eth defaults and the lender takes possession for example. Somebody googles meatballs.eth or they somehow find their way to meatballs.eth.loan and on the page is an ad that pays out to the lender based upon impressions or clicks. If someone clicks the ad, the lender makes money.

The amount of clicks to the page may be very few and the clickthrough rate low but because potentially hundreds of websites are pulling ens data, you maximize your odds of clickthroughs through the sheer strength of the .eth network and the amount of websites that want to display ens profile data.

Let's say it's extremely low because if the word is meatballs.eth, how many people are going to be searching for meatballs.eth even if there's links all over the web. My brain hurts thinking about this and I can't tell if this idea is somehow brilliant or completely stupid. You might be on to something though

[domainer]

Also want to add that if the cost invested is like 10 bucks, to register the name and to set up a link in your ens profile, then there may be a fair shot to generate a profit on this over time. Hard time seeing it if you're trying to make back hundreds or even thousands of dollars on a name.

[edENS]

Thanks for letting me join. Love what your trying to do here and appreciate trying to brainstorm some moneymaking ideas for ens. God knows we could all use a way to monetize the endless pile of crap we have amassed that won't sell. Was talking about this with "domainer" earlier today. if I had dogcrap77.eth, whats it matter if theres a hundred sites with a link for the dogcrap77 profile, nobody's going to search for that name. unless your point was that the name itself has to be good, i.e. we get into web2 domaining and start talking about the value of "exact match domains" and what have you. I can get on board with that science. But for arguments sake say I don't have an exact match domains, I have dogcrap77. eth and dogcrap66.eth and dogcrap55.eth because I thought they'd be worth millons. now they won't sell and I need to make some money with them. how does a person get to these pages without the owner of the them having to spam out links to them? If we can answer this question it will be like we have found the holy grail.

[domainer]

Point taken. What if the owner of the name leads with their strongest name to draw people in. If you have one really good name like cookies.eth and someboody finds that, there could be links to the other names you have. So they find you from cookies.eth and then they're like "really, what is dogcrap77" lol. On second thought I don't think this will work because it reminds me of looking inside someone's wallet and seeing endless spam nfts and not being the least bit curious about them. so scratch that.

Thinking like a dot commer here but what about pairing domains. Again, ignoring all lending for right now. If you'll spend $10 on the name, would you spend another $20 to amplify your odds. Nobody is searching for dogcrap77.eth on google but they might be searching for "dog crap" lol. You pair your .eth with a .com by registering dogcrap77.com for $20. Now you've got a pure .com domain ready to be filled with a landing page that you entirely control. You point that domain at your server, the same server that hosts dogcrap66.com and dogcrap55.com and all your other .coms that pair up with your dog crap names.

dogcrap77.com might not rank high in google for searches about dog crap but it could rank #1 theoretically for "dog crap crypto", "crypto dog crap", "crypto is dog crap", "web3 is dog crap" "dog crap ethereum."

• You manually register dogcrap77.eth
• You manually set the ens profile info with your ad link
• You manually register dogcrap77.com
• You automatically build a dogcrap77.com webpage with some type of website generator designed to trigger certain keywords

And now you've got a real google presence hitting on multiple keywords related to the .eth name.

I just googled "dog food ethereum" and the first result I got was dog-food.eth's profile on coinbase wallet so I think some of the logic is sound. Having the .com could build authority for the name. Now you need to make more than $30/year to breakeven but this seems doable? I'm just thinking about how to make money with the .eth beyond what is spent. Still not thinking lending.

[edENS]

I think you're forgetting some fundamentals and outsmarting yourself. Putting a hacker hat on, what's to stop me, as a random stranger, from just registering dogcrap77.com myself after seeing dogcrap77.eth's sizeable footprint in google search. I then incorporate enough elements of the .eth profile into the .com page that it ends up ranking ahead of all the other results for that .eth name and related names. The ads or links on the .com page are my own. The .eth owner gets nothing and I've successfully piggybacked off of that name's "brand equity." If anything, this feels more like a blackhat seo type scheme but now I'm wondering, haha. ne1 can visit the ENS leaderboard and see what the most popular .eth names are and then check to see if there's a .com version for it in existence. someone looking for the social media famous dogcrap77.eth who has 100,000 followers on twitter might assume that typing in dogcrap77 is just enough. With dogcrap77.com being an exact match domain, google shows that at the top and user thinks "ah, this must be him". Maybe we shouldn't be typing this all on a public forum as this is something on its own that should probably be explored. 😂

[domainer]

ne1 can visit the ENS leaderboard and see what the most popular .eth names are and then check to see if there's a .com version for it in existence.

Couldn't this be done for anything? Look up the top instagram and tiktok account names and just register the .com of it and populate it with somewhat related looking stuff and plaster it with ads? Then you steer clicks to that name from search to you. Are people doing this? I feel like I should know. I don't know that this really ever occurred to me before. This is insane here to think through.

On the ENS leaderboard you linked to, I found one account that legitimately has 1 million followers on twitter and 1 million followers on instagram. He's also got a .eth for which the exact match .com of it does not exist.

1. So, buy the .com
2. avoid infringing on the person's brand with the content + plaster it with your ads
3. Rank high for that name in search
3. profit

I suppose this is a dangerous game but also talking this through has potentially exposed a brand equity vulnerabilty with .eth names. If someone goes to great lengths to brand themselves as their .eth, the best they can do is get profile/data/link pages on OTHER WEBSITES while anyone could register the exact match .com of it and benefit from it being a true web domain by google and bing and divert all the search traffic for that name to the .com.

This would be harder to do with popular instagram and tiktok accounts because google and searchers already respect those social networks so a brand new .com might not even rank ahead of the user accounts for a name. However, if the results are like name.eth.limo and coinbasewallet/profile and name.eth.xyz and all the rest, well those domains won't ring as true to either google or a searcher so the .com would command the top result in search. Something to think about here.

[edENS]

Couldn't this be done for anything? Look up the top instagram and tiktok account names and just register the .com of it and populate it with somewhat related looking stuff and plaster it with ads? Then you steer clicks to that name from search to you.

Came here hoping my names would be worth millions only to find out that dogcrap77.com is going to hijack all my valuable brand equity, lol! you have me a little spooked now because there are lot of folks who have gone to great lengths to "brand themselves" as their .eth name and "build it up" but I fear you are correct because advantage goes to the .com of the name in search since .eth is not a website. So if dogcrap77.eth spends a considerable amount of time "building a brand" and everyone knows "dogcrap77.eth" I can see how anyone's first instinct would be to type that name into google to find him. you start typing in dogcrap77 and google auto suggests dogcrap77.com and you as a regular web searcher or even a savvy web3 one would think that it has to be it, because who the heck else would have that name. so you go to dogcrap77.com and it looks like a very web3 landing page and there's some ethereum info a few links and you click one. In doing so, you've just clicked on a PPC link for the owner of the .com.

[sean3.eth]

Well this has been eye opening. Here I was thinking search and never once thought that if someone just buys the .com of the .eth name, they'll probably outrank all the ens profile page sites. Looks like this theory already plays out.

If I google: decashed.eth, google shows me decashed.com (a domain I also own)

If I google: debanked.eth, google shows me debank.com (a domain I don't even own!). debanked.com comes up second (which is what I do own)

It's interesting that debank.com ranks ahead of the exact match for debanked.com but I suppose debank.com is related to ethereum content and debanked.com is not. In any case, the .com domains won out.

ok ok ok so let me think in terms of lending now. I lend against dogcrap77.eth and it defaults. I spend $20 registering the .com. I'm now $20 deeper in the hole but can use a tool to automate the design and content of dogcrap77.com so that it gets occasional visitors from google. I then set the ens manager link to point to the .com so that every ens profile site on the web now links to the exact match .com. In doing this, I signal to google that the .com is the legit root home of the name, which allows it to rank #1 for dogcrap77, dogcrap77.eth, and variations of dogcrap and web3 related keywords. I also have full control over how this page looks and feels to maximize monetization of a visitor, but this is all done on an automated basis so as to minimize any work. Over the course of a year, the .com generates a paltry $60 in revenue. The .eth and .com renewals cost $30/year combined so the profit is $30/year.

Dogcrap77.eth was a terrible name from the start, which is why the hypothetical owner of it borrowed .1 eth ($180) and defaulted on it without a second thought. But the lender using the above strategy could break even on it after the annual fees in 6 years. Everything thereafter is profit.

At scale, done 1000x, $30/year in profit per domain translates to $30,000/year in profit. 1,000 .eths with 1,000 equivalent .coms could be used to assert dominance in search and generate a presentation that maximizes monetization versus some of the profile pages out there that exist.

Dogcrap77.eth could then go up for sale for .2 eth ($360), double what it was acquired for. Today's ENS seller says "you need this name because it's decentralized in web3" while tomorrow's ENS seller says "name generates currently $30/year in profit. The .com comes with it)." As a result dogcrap77.eth goes from looking like a total dogcrap wallet name that nobody wants to a passive moneymaker with a real life website domain that's attached to it for free that can be used to further increase the value.

Am I crazy? Maybe I'm crazy. Some individuals have portfolios of thousands .eth names so the idea that this could be done at scale 1,000+ times could be feasible especially with the right automated tools. It would be ironic if the secret to monetizing a .eth name would be through a .com, but one needs a legit website that both google and searchers would put strong authority on to maximize monetization.

[domainer]

What kind of ads would you put that would yield $60 a year in revenue? Are we talking like Google ads or affiliate ads? Google ads might actually boost the site ranking!

[sean3.eth]

What kind of ads would you put that would yield $60 a year in revenue? Are we talking like Google ads or affiliate ads? Google ads might actually boost the site ranking!

Could be anything.

[edENS]

let's take a big step backwards. If the strategy to monetizing a .eth is to also buy the .com and do stuff with that instead, then something is seriously wrong. In the real world, no major ens holder with a thousand plus .eth domains, who already can hardly afford the annual renewal cost of them is going to be convinced to now go out and buy a thousand dot coms with the intent being to monetize them with ads and affiliate marketing links to try and prop up their .eth names. I think we need to completely reevaluate what we're even talking about here. so the name gets beat by someone else that owns the .com of it in google, so what. if we can think of another way to make money that doesn't involve buying dot coms I am all ears.