NFT-backed lending, led by Blur and Arcade, is making a comeback
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At the height of the NFT mania in 2021 and 2022, it seemed logical to borrow money against an NFT, even if it was novel. The prices of non-fungible tokens were sky high – some in the millions – especially for pieces in blue chip collections like Bored Ape Yacht Club and CryptoPunks.
Proponents such as Gabe Frank, CEO of Arcade, which created a protocol to facilitate NFT lending between individuals and organizations, said the concept was smart because people who intelligently (or luckily) came to own more NFTs could unlock liquidity tax-free without selling their assets. They could reinvest that liquidity in other NFTs or cryptos or put it into real assets, lending against what was then seen as a relatively safe digital asset as long as someone was willing to make the loan, he said.
This year, amidst a collapse in the value of some of the largest NFT collections, and a still struggling crypto market, it wasn’t clear to me that this concept was still a smart idea.
That hasn’t stopped Blur, now the largest NFT marketplace by transaction volume (OpenSea still has more users), from introducing its own lending product, Blend, which since its launch earlier this month has already issued 33,580 Ether, or about $61 million, value of loans, according to Dune.
Still, while other lending products have focused on relatively long-term loans – like three or six months, admittedly a lot for the high-speed Web3 space – Blur has focused on 24-hour person-to-person loans, with no fees for using the platform, where a lender can transfer exposure to another on a whim via a Dutch auction.
Although Frank, of rival NFT lender Arcade, said the popularity of Blend bodes well for the NFT lending ecosystem as a whole, he’s not so sure about the model Blur has chosen. He also believes that floor prices in the future may become increasingly volatile for the NFT collections Blend accepts, such as BAYC, Mutant Ape Yacht Club, Azuki, Wrapped Cryptopunks, DeGods and Miladys.
“It caters mainly to traders and speculators who engage in agriculture [Blur’s] points/rewards system rather than organic loan activity,” Frank said in an email. “Not as good for collectors or borrowers with ‘above floor’ assets looking for term loans.”
For its part, Blur told me via Twitter DM, “Blend offers higher loan amounts and lower interest rates than any other lending protocol on the market.”
As for Arcade, he said to my surprise that the lending business was doing better than expected. The platform has issued loans to 500 borrowers in 2023, compared to Blend’s 988 unique borrowers, according to Dune. Arcade’s protocol has facilitated about $45 million in loans so far in 2023.
Frank said Arcade has seen even more people willing to borrow than people seeking loans because of the high APR (16.5% on average). I’m still unsure if this model can last, but it opens an interesting window into the possibilities Web3 enables for the financial world.
The competition between lenders on Arcade is slowly driving down interest rates for borrowers on an annual basis, to the point where even Frank has been able to use a CryptoPunk he owned to secure a six-month loan of 45 Ether ($81,600) at 9 % APR—lower than 9.5% APR on the Toyota Tacoma loan.
In other news
Ubisoft licensed a series of Assassin’s Creed NFTs that will also exist as physical characters inside a cube, according to VGC. The non-fungible tokens represent characters from the games, and will be called “digital souls”, whose weapons, outfits and appearance can be edited using a companion app. The collectibles are managed by Integral Reality Labs and will be recorded on Polygon blockchain.
Cloud Mavisthe company behind Axie Infinitylaunched a small version of the Web3 game for mobile that does not require the purchase of NFT Axies. Axie Infinity: Origins gives players “starter” Axies – the game’s fluffy, fighting protagonists – but players with existing Axies from the desktop version can also use theirs, Decrypt reported.
Web3 company One of and Globe Entertainment issued a series of printed photographs of Marilyn Monroe double that of NFTs. The 40 images (eight inches by 10 inches) include a near-field communication tag on the back that can be used to retrieve each image’s blockchain-backed certificate of authenticity. The photos, from the Kim Goodwin archive, start at $300 each.
Pudgy penguins released NFT-inspired toys that are already rumored to have brought in half a million dollars in revenue. Made by PMI, which also makes products for the video games Fortnite and Among usthe toys are Pudgy Penguin’s attempt to reach more mainstream consumers.
Horizon Blockchain Game integrated its wallet and infrastructure stack, Sequencewith Polygon Labs’ Polygon supernet, which helps app developers customize and expand block space based on their needs. Horizon’s Sequence aims to unlock improved scalability, security and user experience for blockchain technology.
This story was originally featured on Fortune.com
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