Someone borrowed $1.3 million in Ethereum using mutant monkey NFTs as collateral

DeFi lending was already big business, but a rapidly growing niche is lending against valuable NFTs and using them as collateral for loans. Fragment, the holder of a pair of Mutant Ape Yacht Club NFTs, borrowed 1,000 ETH – around $1.3 million – using the star-studded JPEGs as collateral today.

“It’s great to see these loans being funded in this market climate, and more so that it’s happening across the chain via DeFi,” Gabe Frank, CEO of NFT lending company Arcade, told Decrypt. Arcade facilitated the latest eye-catching loan.

“Prices have stabilized somewhat and volatility has fallen, so lenders seem more willing to underwrite larger loans,” Frank explained. “At the same time, the mega mutants are incredibly rare assets.”

This particular loan is a non-recourse loan, which means the lender can seize the loan collateral in the event of default. The lenders on the other end of Fragments Mutant Ape loans are Nexo and Meta4 NFT Lending. According to Arcade, the loan repayment terms are 1,044 ETH in 90 days with an APY of 18%.

“If the borrower defaults, the lender has a chain claim on the collateral in the protocol,” Frank previously said Decrypt. “So the lender can claim the assets, package it up and then sell it if they have to, or keep it on the balance sheet.”

Non-fungible tokens, also known as NFTs, are cryptographically unique tokens linked to digital and physical content, membership or proof of ownership.

“We build IPs around [Mega Mutants]starting with @AppliedPrimateso we’re looking to have more Megas join our universe,” Fragment founder PTM told Decrypt.

“The idea here was how we can quickly get money to take advantage of an opportunity. Lending was the right call for what we needed,” explained PTM. “We will probably liquidate the loan in the next 90 days or so.”

In March, a CryptoPunks holder used his collection of 101 NFTs to borrow $8 million. In April, another CryptoPunks holder opted for an auction at Sotheby’s and instead borrowed $8.3 million in DAI using the bundle of 104 NFTs as collateral. These borrowers brokered the loans through NFTfi, an NFT-backed loan marketplace.

According to Arcade, there has been a steady increase in NFT lending since June 2022, with a peak of $2.5 million in September, although the most activity remains in the buying and selling of NFTs, with 11.1 million dollars in September, says Arcade.

Holders of “blue chip” NFTs see borrowing against their collections as a lucrative option that, as opposed to selling the NFTs, will allow them to retain ownership.

As long as they don’t default on the loan, in which case it’s bye-bye JPEG.