Mysterious collector exploits mutant monkey NFTs to buy a third for $1.3 million

Betting that the Mega Mutant Apes are stronger together, one collector has made a risky bet on the blue-chip NFT collection.

Fragment, a three-person company that “creates rich stories and worlds for the metaverse,” took out a 1,000 ETH loan, worth about $1.3 million, on Tuesday to buy Mega Noise, one of the rarest NFTs in Mutant Ape Yacht Club Collection.

The security? Two other Mega Mutant Apes that Fragment will lose if it fails to repay the loan within 90 days.

Cryptolender Nexo made sure of ETH at an annual interest rate of 18%.

“APRs [in NFT lending] are abnormally high” Kirill Nikolov, a member of Nexo’s NFT lending team, told The Defiant. “The main reason is that this product is not mature, so there is limited demand and limited understanding from lenders about the security, its risks and how to secure it.”

Fragment’s founder, who goes by the pseudonym p.mtold The Defiant that he understands the risk he has taken.

“A lot of people who build in the NFT area wouldn’t be in this area if they weren’t comfortable with some risk,” he said. “I wouldn’t be honest if I didn’t tell you that clicking those buttons to do gave me a little anxiety [the loan] happen.”

Bored Ape derivative

Mutant Ape Yacht Club is a profile picture style NFT collection spun off Bored Ape Yacht Club, the most valuable NFT collection by market cap. Both Mutant Apes and Bored Apes have become status symbols, with the cheapest in each collection worth nearly $60,000 and $110,000 respectively.

However, there are even rarer monkeys. Of the 30,000 dull and mutant monkeys, there are a dozen or so Mega Mutant monkeys, each worth several times their running brethren. Last year, Yuga Labs, creator of the Bored Ape Yacht Club, sent “mutant serum” NFTs to Bored Ape holders.

“Exposing” his Bored Ape to the serum created a new Mutant Ape, a process that destroyed the serum but left the original Ape intact. But there are several levels of serum. The M3, of which there were eight, is the rarest. Bored Apes exposed to M3 serum generated the Mega Mutants, and the serums are almost as valuable as the Apes themselves; one M3 serum sold for more than $2 million in January.

With the purchase of Mega Noise, Fragment now has five Mega Mutants, which it has collected for a secret multimedia project entitled “Applied Primate Engineering.” Ptm addressed the purchase of Mega Noise and his ambitions for Applied Primate Engineering on Twitter on Wednesday.

NFT lending is gaining momentum

While the loan is unusual, it’s part of a broader push to put NFTs to work — to make the illiquid, hard-to-price assets useful in the broader DeFi ecosystem.

Peer-to-peer NFT lending platform Arcade facilitated the deal. Arcade co-founder Robert Masiello told The Defiant that NFT lending protocols act like pawn shops, where someone can take out a short-term loan against a vintage guitar or a Rolex watch.

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NFT trading volume has fallen more than 80% since its all-time high earlier this year, according to data from crypto analytics firm Nansen. Still, Arcade is having one of its best months, which Masiello attributes to greater awareness of NFT lending platforms in general.

Fragment’s loan is not the biggest Arcade has facilitated. Earlier this year, Nexo lent 1,200 ETH – worth $3.3 million at the time – to an anonymous borrower who posted a pair of rare Zombie CryptoPunks as collateral.

But Mega Mutant Apes used as collateral, Mega Electric and Mega Swamp, may be the rarest NFTs used that way, Masiello said.

“When we saw this happening on the platform, we said, ‘Wow, I can’t believe people are even moving these things,'” he said. “If you were to think of our protocol as a bank vault or something, it’s like they gave us the Declaration of Independence.”

Ptm said he chose to take out a loan out of fear he might miss out on the opportunity to buy Mega Noise.

“The idea here is that we have some things in the pipeline that will generate real revenue over the next few months that we will use to pay [the loan],” he said. “This happened because I have had a relationship with lenders for a long time. . »

Ptm said the revenue-generating projects will be announced in the coming weeks.

Guaranteed exposure

Given the risk of an NFT collection losing its luster, Nexo is cautious about accepting NFTs – even Bored Apes – as collateral.

“If it were up to us, we wouldn’t take the directional risk of Apen going to zero, although we don’t think it’s likely,” Nikolov said.

Nexo found a solution by connecting with “hedging partners” willing to take that risk.

Should Fragment default on the loan, Meta 4 Capital, Nexo’s collateral partner in the Mega Noise purchase, will make Nexo whole and take ownership of the pair of Mega Mutant NFTs used as collateral.

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“They play the role of liquidator on our behalf,” Nikolov said.

Nabyl Charania, managing general partner at Meta 4 Capital, said he was eager to play that role.

“From our perspective, it’s a very safe deal,” he told The Defiant. “One, we know the borrower. But two, in the event of a default, we’re very, very comfortable acquiring that asset.”

Several weeks ago, another Mega Mutant Ape sold for about 1,000 ETH in a private sale, Charania said. And last year “these were sold [for] over 2000 ETH, when ETH was almost two and a half times the price it is right now.”

Citing Wednesday’s sale of a CryptoPunk for 3,300 ETH, or nearly $4.5 million, ptm said that Mega Mutants are likely undervalued, given their aesthetic appeal and their rarity.

“I think it’s kind of the two sides of NFTs — it’s ‘these things are worth a lot,’ but it’s also ‘what are they for?'” he said. “And I think we’re really trying to figure out “what are they for?” and how they are changing existing businesses that we know and love, like media.”