Wealthy NFT Owners Take Out Loans Backed By Bored Apes, CryptoPunks

  • Arcade, an NFT lending platform, holds over $20 million in NFT in escrow
  • Nexo, a cryptocurrency lender, introduced its NFT-backed lending desk last year

Wealthy people, long accustomed to taking out loans against Picasso and van Gogh, are now mining Bored Apes and CryptoPunks as cash reserves.

In the latest sign that digital art and collectibles are entering the financial mainstream, an NFT collector posted two rare Zombie CryptoPunks this week as collateral for a $3 million loan facilitated by the peer-lender. to-peer Arcade.

The NFT (non-fungible token) platform specializes in connecting blockchain art owners with potential lenders. Arcade has more than $20 million worth of NFTs in escrow, according to CEO Gabe Frank.

Arcade’s financing terms, Frank said, are comparable to art lending — a market where hedge funds and other asset managers take out loans on behalf of wealthy art collectors. Bank of America, for example, has over $10 billion in such loans.

“It’s very much like this model in that wealthy collectors want to use their tied up capital more efficiently,” Frank said. “[For them]it comes down to capital efficiency, the ability to leverage [their] assets and buy more NFTs or invest elsewhere to earn a higher rate than an interest rate on a loan.

The model throws credit checks and reserve assets out the window, assuming the borrower and lender settle the loan with confidence, using self-custody and keeping the transaction on-chain.

Arcade loans typically last three months and charge 20% interest per year – less than credit cards, but still higher than other bank loans. Fees vary, in part depending on the liquidity of an NFT.

“It’s kind of our niche, this high-end, long-tail market,” Frank said. “We provide this type of (over-the-counter) service to wealthy collectors who want to secure their assets. Sounds like something Sotheby’s does.

Noah Gaynor, CEO of NFT marketplace Parcel, told Blockworks that this is another sign that “various protocols and primitives [are] bridging DeFi and NFT.

Gaynor added: “NFTs should be treated the same as any other asset, which includes their use as collateral.”

Arcade exclusively supports ether-based NFTs, with acceptable collateral ranging from virtual plots to top-notch collections such as Bored Ape Yacht Club and CryptoPunks.

“We think that [around] 95% of NFTs are probably worth nothing,” Frank said. “But it’s the top 5% like CryptoPunks and Apes that have billions in market capitalization that have a lot of resistance.”

Other crypto companies are following suit in the NFT lending game.

Crypto lender Nexo launched its first NFT lending desk in December, also accepting Bored Apes and CryptoPunks as collateral.

“An NFT can be anything and can provide so many functions,” Nexo co-founder Antoni Trenchev told Blockworks. “[In the future,] we’ll provide loans and finance people’s purchases for anything from digital real estate to gaming items, or even limited-edition Nike sneakers.

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  • Morgan Chittum

    Morgan Chittum is a New York-based journalist covering NFTs, Metaverse, Game-to-Win, and other emerging Web3 technologies for Blockworks. Previously, she was a street reporter, covering crime at the New York Daily News, and a press and journalism officer at the Poynter Institute. Contact Morgan by email at [email protected]

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