NFT-backed loans are becoming increasingly common, similar to the DeFi lending era. An anonymous CryptoPunk owner was able to secure a $3.3 million loan by using two of his pixelated avatars as security.
Nexo, a cryptocurrency lending company, provided the loan at a 21 % yearly interest rate. Arcade, a DeFi and NFT lending platform, and Meta4Capital, an investment firm, were among the participants. “We are exhibiting the merger of traditional, decentralised, and crypto finance with this multilateral alliance,” said Kiril Nikolov, Nexo’s chief of DeFi strategy.
The deal, according to Bloomberg, reveals how sophisticated the NFT loan market has evolved.
Nexo, a centralised crypto lender, issued the loan on Arcade, a peer-to-peer marketplace for NFT lending, in a complicated agreement.
For those who are unfamiliar, NFT-backed loans are similar to regular loans in that the digital asset is utilised as collateral. In the instance of Nexo, consumers can access immediate cash of 10% to 20% of the value of their CryptoPunk or Bored Ape Yacht Club NFT.
Liquidity is often provided in stablecoins or ETH, and NFTs will not be liquidated even if their value falls after the funds have been borrowed. Unlike traditional finance, where borrowing and annualised rates are based on your credit history, rates in the NFT loan markets typically vary from 12 % to 15 % and are dependent on the NFT being supplied as well as market circumstances.
The lender is entitled to collect the underlying NFT if the borrower fails to repay the loan and interest before the conclusion of the loan period.