Wealthy NFT Owners Are Taking Out Loans Backed by Bored Apes, CryptoPunks
“That’s our niche, that high-end, long tail market,” the head of an NFT lending marketplace told Blockworks
Blockworks exclusive art by Axel Rangel
- Arcade, an NFT lending platform, has more than $20 million of NFTs in escrow
- Nexo, a cryptocurrency lender, introduced its NFT-backed lending desk last year
Wealthy individuals, long accustomed to taking out loans against Picassos and van Goghs, are now tapping Bored Apes and CryptoPunks as stores of cash.
In the latest sign that digital art and collectibles are coming into the financial mainstream, one NFT collector put up two rare Zombie CryptoPunks this week as collateral for a $3-million loan facilitated by peer-to-peer lender Arcade.
The NFT (non-fungible token) platform specializes in matching blockchain art owners with would-be lenders. Arcade has more than $20 million of NFTs in escrow, according to CEO Gabe Frank.
Arcade’s financing terms, Frank said, are comparable to fine art lending — a market where hedge funds and other asset managers underwrite loans on the behalf of art-collecting high-net worth individuals. Bank of America, for instance, has more than $10 billion of such loans.
“It looks very similar to that model in that high-net-worth collectors want to use their locked up capital more efficiently,” Frank said. “[For them], it comes down to capital efficiency, being able to leverage [their] assets and either buy more NFTs or invest elsewhere to earn a higher rate than an interest rate on a loan.”
The model tosses credit checks and reserve assets out the window, considering both borrower and lender settle the loan trustlessly, employing self-custody and keeping the transaction on-chain.
Arcade’s loans typically last three months and charge 20% interest annually — less than credit cards, but still steeper than other bank loans. The fees vary, in part depending on an NFT’s liquidity.
“That’s kind of our niche, that high-end, longtail market,’ Frank said. “We provide this (over-the-counter) type of service for high-net-worth collectors that want to collateralize their assets. It looks similar to something that Sotheby’s does.”
Noah Gaynor, CEO of NFT marketplace Parcel, told Blockworks it’s another sign that “various protocols and primitives [are] bridging DeFi and NFTs.”
Added Gaynor: ”NFTs should be treated the same as any other asset, which includes using them as collateral.”
Arcade supports exclusively ether-based NFTs, with acceptable collateral ranging from plots of virtual land to blue-chip collections such as Bored Ape Yacht Club and CryptoPunks.
“We think that [around] 95% of the NFTs are probably not worth anything,” Frank said. “But it’s the top 5% like the CryptoPunks and the Apes that have billions in market cap that do have a lot of staying power.”
Other crypto companies are following suit in the NFT lending game.
Crypto lender Nexo started its first NFT lending desk in December, likewise accepting Bored Apes and CryptoPunks for collateral.
“An NFT can be anything and can provide so many functions,” Antoni Trenchev, co-founder of Nexo, told Blockworks. “[In the future,] we’ll be providing loans and financing people’s purchase against anything from digital real estate, to gaming items, or even limited edition Nike sneakers.”
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