A fast-growing part of the DeFi lending industry is lending against valuable NFTs as collateral. Fragment, who owns two Mutant Ape Yacht Club NFTs, used celebrity-filled JPEGs to borrow 1,000 ETH (about $1.3 million) today.
Gabe Frank, CEO of NFT lending company Arcade, told Decrypt, “It’s awesome to see these loans getting funded in this market climate, and more so that it’s happening all on-chain via DeFi.” Arcade made it possible for the most recent loan to make jaws drop.
Frank said that prices have become less volatile and banks seem more willing to back bigger loans. At the same time, “the mega mutants are incredibly rare assets.”
Even though this is a non-recourse loan, the lender has the right to take the loan collateral if the loan is not paid back. Fragment’s Mutant Ape loan goes to two other companies, Nexo and Meta4 NFT Lending. The loan terms on Arcade say that the borrower must pay back 1,044 ETH in 90 days at an annual percentage rate of 18%.
Frank informed in the past that “If the borrower defaults, the lender has an on-chain claim to the collateral in the protocol.” So, the lender can take possession of the property, open it up, and either sell it or keep it as an asset.
Non-fungible tokens can only be exchanged for a certain piece of digital or physical content, a membership, or proof of ownership (NFTs).
Fragment’s founder, PTM, said “We’re building IPs around [Mega Mutants], starting with @AppliedPrimate, so we’re looking to have more Megas to participate in our universe,”
“The idea here was how do we get some cash fast to take advantage of an opportunity. Lending was the right call for what we needed,” P PTM said. “We will likely unwind the loan in the next 90 days or so.”
In March, one person who owned CryptoPunks was able to borrow $8 million by putting up 101 NFTs as collateral. In April, another person who owned CryptoPunks decided not to sell their bundle of 104 NFTs at Sotheby’s. Instead, they used the bundle as collateral to borrow $8.3 million in DAI. NFTfi, a loan marketplace that is backed by NFTs, helped these debtors get loans.
Since June 2022, the number of NFTs that were borrowed has steadily gone up, reaching a peak of $2.5 million in September, according to Arcade. However, buying and selling NFTs is still the most popular thing to do, with $11.1 million in September.People think that borrowing against “blue chip” NFTs is a good idea because it lets people keep their NFTs instead of selling them.
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