Fragment, who holds a pair of Mutant Ape Yacht Club NFTs, has reportedly laid them up as collateral in a historical borrowing which amounts to 1,000 ETH—around $1.3 million. The collateral earlier mentioned is the star-studded JPEGs.
“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, said this in a recent interview. . Arcade facilitated the latest eye-popping loan.
Frank explained the prices of tokens, particularly NFTs have become stable for some time and this has resulted in reduced volatility. This is encouraging lenders to finance larger loans. At the same time, mega mutants represent a very rare type of NFT.
This individual loan is a non-recourse loan, it follows that the lender can confiscate the loan collateral in the event that the borrower defaults.
According to Frank,
“If the borrower defaults, the lender has an on-chain claim to the collateral in the protocol,”
Frank continued by noting that lenders accepting NFT collaterals are permitted to confiscate the assets in question, unwrap them, and sell them if they desire, in the event that there’s a default, in order to balance their sheets.
The lenders, on the other end, who facilitated Fragment’s Mutant Ape loan, are the renowned Nexo and Meta4 NFT Lending. According to Arcade, the loan repayment conditions are 1,044 ETH to be repaid in 90 days at an 18% APY.
The Rise Of NFT-Collateral In DeFi Borrowing
Non-fungible tokens, also known as NFTs, are cryptographically distinctive tokens tied to digital and physical content as well as proof of ownership.
Industry experts have expressed opinions about how this presents an opportunity to get some cash fast to seize advantage of prospects. Lending would seem the right call for so many cash needs, according to experts.
According to Arcade, there has been regular growth in NFT borrowing since mid-year, 2022. The NFT borrowing markets touched a record high of $2.5 million in September, although most activity remains in buying and selling NFTs, with $11.1 million in September.
In March, a CryptoPunks holder used their compilation of 101 NFTs to borrow $8 million. Another such endeavor happened in April when CryptoPunks holders opted against an auction at Sotheby’s but rather borrowed $8.3 million in DAI using their 104 NFTs collections as collateral. Those borrowers facilitated the loans through NFTfi and NFT-backed loan marketplace.
Some owners of “blue chip” NFTs are catching a glimpse of borrowing against their compilations as a lucrative option. This proposes an opportunity to retain ownership unlike selling their NFTs and allows them access to cash money when needed. This is possible as long as they don’t default on the loan, in which case it’s bye-bye JPEG.