Issue 24 🍵 Take a loan against your NFT with NFTfi
Or write a loan for one! NFTs - not as illiquid as you think.
Disclaimer: This newsletter is not financial advice. We buy what we like, and you should buy what you like. Using the project below is also not without smart contract risk and financial risk, so act according to your best judgment.
There hasn’t really been any stand-out news, so today, it’s just gonna be one expanded Try This.
Specifically, we want to talk about NFTfi.
How does it work? If you have an NFT, you can go to NFTfi and see if anyone would be willing to offer you a loan in ETH or DAI (a stablecoin pegged to USD). If you don’t repay the loan, the entity that lent you the money can seize your collateral. You lose your NFT, you keep the cash.
It kinda works like a mortgage, if you’re familiar with that.
As the deals are peer-to-peer, it isn’t as simple as showing up and immediately getting an automatically calculated loan, like in DeFi. There’s some human back-and-forth, so there are inefficiencies that include:
It can be a struggle to price some of these assets. A series of work, like Artblocks, has enough market data to get a sense of fair pricing. One of one works is a lot harder, though, and therefore may even get no offers.
It’s not so feasible to take a loan against lower-cost NFTs. It’s free for lenders to write offers, but if I, as a borrower, want to start one of these loans, it requires a gas transaction. The actions are also a bit complex, as the transaction will mint an NFT promissory note and trigger the movement of assets, so the fee can be expensive. It’s most cost-effective to take a loan against higher value assets.
As a lender, I could make a great offer with decent loan terms and a low APR. This still doesn’t guarantee that the counter-party will take the loan and set things into motion! From experience, I do have a preference for writing offers for people I can contact on Discord versus an anonymous wallet.
Despite all of that inefficiency though, NFTfi’s facilitated a few millions in volume anyway. The screenshot below is approximately $2M in loan activity, and that’s just for the top 5 projects for ETH loans! There’s still the other projects, and there’s DAI data too.
We’ve tried NFTfi, both as a borrower and a lender, and it just works. Incentives are just right.
The benefits for a borrower is very clear. You can get some temporary money for your NFT, without selling it. And especially for really valued “blue chip” NFTs like CryptoPunks—show up in the Discord, say you really want a loan, and you will get offers.
The last loan activity, as of the time of this writing, was for $20K. There’s liquidity, we promise.
As a lender, it can go two ways. The person can repay, and I got a good interest rate on my money—I personally issue loans at APRs of 10% and above.
The fun is when someone defaults on a loan. 😀
The game, as a lender, is to win no matter what option the borrower takes. Either I get a good interest rate, or I get a great entry price for a good NFT.
Because the basic rule around NFTfi is that no one is gonna write a loan for 100% of the NFT value. Most people do around 50%, more or less. No matter how people say NFTs are illiquid, the market’s volatile and liquid enough.
So especially for longer loans, like 30 to 90 days, I should be able to sell the NFT for a profit. It’s easier to protect myself against market movement by writing loans at 50% or less of the NFT’s value.
As a collector, it’s really the only place where I can get someone to accept my deeply discounted bids! Which is very unheard of, but that is only possible if I can appraise my targets properly.
And that’s a really big if. There is risk, and it is possible to make costly mistakes.
I personally did have a stressful period where I got a default on an 0.8 ETH loan against a Chromie Squiggle, from Artblocks. I clearly overpaid at the time, and that was on me! I just wrote a random loan because I knew there was Squiggle hype.
I remember not even knowing how to navigate the Opensea listings for Squiggles, that’s how poorly informed I was. 😅 But now the floor for that project is around 2 ETH, so it ended well. It was absolutely crushing when the floor was around 0.6 ETH, though, so there is risk and mistakes to be made here.
🌱 OpenSea announced a $100M raise led by A16Z, and cross-blockchain support, starting with Polygon. At a $1.5B valuation, that’s a unicorn.
🌱 South China Morning Post, Hong Kong’s largest English media, is turning historical events they’ve covered into NFTs. This will be in partnership with The Sandbox, and will first be rolled out to trusted partners. The rate at which people are understanding and adopting NFTs astounds us everyday.
🌱 Dolce & Gabbana will be releasing NFT wearables called “Collezione Genesi” (Genesis Collection) on UNXD. The pieces will be featured during their Alta Moda, Alta Sartoria and Alta Gioielleria shows, happening this August.
🌱 PleasrDAO took a $3.5M loan against their NFTs, using Cream Finance’s Iron Bank. The DAO used Edward Snowden’s “Stay Free,” Tor Project’s “Dreaming at Dusk,” and Pplpleasr’s “x*y=k” and “Apes Together Strong.” It was a DAO to DAO transaction, so can’t help but wonder the nitty-gritty details that we would see if this was on the open market. What price would people agree those NFTs are worth, and what interest rate would the DAO be charged?
The Defiant reported on how a bunch of people were making millions off of a game called Alien Worlds by botting it. As play-to-earn grows, how do these games structure their economies so that one botting entity can’t skew all the rewards in its favor?
Dylan Mayoral is an award-winning dancer / choreographer based in London. He has done work for artist’s like Dua Lipa, Rita Ora, and KPOP group “BTS.” He mints NFTs featuring his own choreography, and sales from the NFTs are split between him and the artist of the songs he dances to. Talk about a win-win situation!
This was a bit different, so we hope you liked it. If you got any cool topics or news we can throw in here, please hit reply and pass it our way.
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🍵 See you again next Wednesday.