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NFT Lending Market Reveals Need for Liquidity – Blockworks

  • NFT-backed lending risk higher amid falling NFT price floors and ETH price
  • Bored Ape Yacht Club NFTs have the highest cumulative total loan volume on NFTfi

Celsius Network’s decision to suspend withdrawals, exchanges and transfers has rocked the crypto lending market. And, when the broader crypto market experiences a downturn, the NFT market follows.

While an exchange as big as Celsius, which has registered 1.7 million clients and reported more than $20 billion in assets under management in 2021, may have liquidity issues, it stresses the importance of maintaining a tradable portfolio. .

Although most NFTs (non-fungible tokens) are illiquid, NFT loans have become a popular solution for accessing more money. Essentially, NFT owners can collateralize their NFTs in exchange for cryptocurrencies or fiat, and lenders who invest in NFT-backed loans can earn higher returns compared to traditional crypto-backed loans or loans. peer-to-peer (P2P).

The two largest peer-to-peer NFT lending marketplaces are NFTfi and Arcade. The latter has disbursed $20 million in loans since its launch in January this year.

Among Arcade’s most recent transactions: crypto lender Nexo, which issued a 1,200 ETH loan worth over $3.3 million, through Arcade to an anonymous borrower who set up two NFT CryptoPunks Zombies as collateral. The 60-day loan carries an annual percentage rate (APR) of 21%, according to Bloomberg.

At a time when NFT prices are under pressure from both lower price floors and the price of ETH, “if the value of the underlying collateral drops more than the value of the loan, the lender could suffer a capital loss,” a Nexo representative told Blockworks. Or the lender might not be able to sell the secured NFT at the full market price in the event of default.

Adverse market conditions led Nexo to hedge the lending risk through partners such as investment manager Meta4 Capital which agreed to buy the NFTs at a fixed price, the company said.

Brandon Buchanan, founder and managing partner of Meta4, told Blockworks that he remains bullish over the long term on the NFT market.

While blue chip projects such as Bored Ape Yacht Club are seeing steady daily activity, “liquidity has dried up for some projects as there have already been several months of consolidation in blue chip NFTs”, according to Buchanan. , adding default rates in the credit market rose slightly, but remain quite low.

The largest NFT-backed loan to date was granted to 0x650d, the pseudonymous collector who last-minutely withdrew his batch of 104 CryptoPunk NFTs at Sotheby’s in February, for 8.3 million DAI stablecoins on his CryptoPunks in April. . The loan, which was facilitated by the NFT MetaStreet lending protocol on the NFTfi marketplace, has an APR of 10% with a term of 90 days.

In the second-largest $8 million DAI stablecoin NFT-backed loan, an anonymous borrower secured his collection of 101 CryptoPunks at a 10% APR and 30-day tenure, also facilitated by MetaStreet on NFTfi.

NFTfi has handled approximately $165 million in NFT-backed loans so far in 2022 and has a cumulative loan volume of $206,911,303 across 12,119 loans since its inception in 2020, according to Dune Analytics.

The company tweeted On Monday, NFTfi users unlocked over $30 million in loan volume using CryptoPunks.

When asked about its NFT lending strategy, Nexo said it would “fully hedge our exposure with partner desks” and focus on ETH lending, “where NFT prices experience smaller declines and are more correlated with ETH prices. “.

As for its prospects in the NFT market, the company expects many projects to drop their roadmaps and “over 90% decimation rate, with Yuga Labs being the notable survivor.”

In fact, NFTfi reported last week that Bored Ape Yacht Club (BAYC) NFTs have the highest cumulative total loan volume on its platform, with an average loan size of 38.39 ETH. May recorded the most BAYC loans on NFTfi with 95 loans. The largest borrower pledged his BAYC #591 as collateral for 122.9 ETH.

Nexo made a formal asset purchase offer to Celsius on June 13, saying it was already aware of the lender’s problems.

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  • Ornella Hernández



    Ornella is a Miami-based multimedia journalist who covers NFTs, the Metaverse, and DeFi. Prior to joining Blockworks, she worked for Cointelegraph and also worked for TV channels such as CNBC and Telemundo. She started investing in Ethereum after hearing about it from her father and hasn’t looked back since. She speaks English, Spanish, French and Italian.

#NFT #Lending #Market #Reveals #Liquidity #Blockworks

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