DeFi lending was already big business, but borrowing against valuable NFTs and using them as collateral for loans is a rapidly growing niche. Fragment, the owner of a pair of Mutant Ape Yacht Club NFTs, borrowed 1,000 ETH (approximately $1.3 million) with the star-studded JPEGs as collateral.
Fragment borrowed 1K ETH with the Mutant Ape as collateral.
“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,” Gabe Frank, CEO of NFT lending company Arcade, stated. Arcade facilitated the latest eye-popping loan.
“Prices have stabilized some, and volatility has dropped, so lenders seem more willing to underwrite larger loans,” Frank explained. “At the same time, the mega mutants are scarce assets.”
This is a non-recourse loan, meaning the lender can seize the loan collateral if the borrower defaults. Nexo and Meta4 NFT Lending are the lenders on the other end of Fragment’s Mutant Ape loan. The loan repayment terms, according to Arcade, are 1,044 ETH in 90 days at an 18% APY.
“In the protocol, if the borrower defaults, the lender has an on-chain claim to the collateral,” Frank previously stated. “So the lender can claim the assets, unwrap them, sell them if necessary, or keep them on their balance sheets.”
Non-fungible tokens (NFTs) are cryptographically distinct tokens linked to digital and physical content, memberships, or proof of ownership.
“We’re building IPs around [Mega Mutants] starting with @AppliedPrimate, so we’re looking for more Megas to participate in our universe,” Fragment founder PTM explained. “The idea was to get some cash quickly so we could take advantage of an opportunity.” PTM explained, “Lending was the right call for what we needed. We expect to repay the loan within the next 90 days or so.”
In March, a CryptoPunks user borrowed $8 million using their collection of 101 NFTs
Another CryptoPunks holder avoided a Sotheby’s auction in April, instead borrowing $8.3 million in DAI with the bundle of 104 NFTs as collateral. The loans were made possible by NFTfi, an NFT-backed loan marketplace.
According to Arcade, there has been a steady increase in NFT borrowing since June 2022, with a high of $2.5 million in September. However, most activity continues to be in buying and selling NFTs, with $11.1 million in September.
Borrowing against a collection of “blue chip” NFTs is a lucrative option that allows them to retain ownership, unlike selling their NFTs. As long as they don’t default on the loan, in which case JPEG is toast.