NFT-backed loans are making a comeback

NFT-backed loans are making a comeback

Welcome to This Week in the Metaverse, where Fortune rounds up the most interesting news in the world of NFTs, culture, and the metaverse. Email [email protected] with tips.

At the height of NFT mania in 2021 and 2022, borrowing money against an NFT, although novel, seemed logical. 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.

Advocates like Gabe Frank, the CEO of NFT lending platform Arcade, said the concept was smart because people who intelligently (or luckily) came to own several NFTs could unlock liquidity tax free without selling their assets. They could reinvest that liquidity in other NFTs or crypto or put it into real-world assets, borrowing 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, amid a collapse in the value of some of the biggest 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 biggest 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 given out 33,580 Ether, or about $61 million, worth of loans, according to Dune.

Still, while other lending products have focused on relatively longer-term loans—like for three or six months, admittedly a lot for the high-speed Web3 space—true to its speculative nature, Blur has focused on 24-hour person-to-person loans, with no fees for using the platform, where one lender can offload exposure to another on a whim via a dutch auction. 

Although Frank, from competing NFT lender Arcade, said the popularity of Blend bodes well for the NFT loans ecosystem as a whole, he’s not so sure about the model Blur has chosen. He also believes that in the future, floor prices could be increasingly volatile for the NFT collections Blend accepts, such as BAYC, Mutant Ape Yacht club, Azuki, Wrapped Cryptopunks, DeGods, and Miladys.

“It mostly caters to traders and speculators farming [Blur’s] points/rewards system rather than organic loan activity,” Frank told me in an email. “Not as great for collectors or borrowers with ‘higher than floor’ assets looking for fixed term loans.”

For its part, Blur told me via Twitter DM, “Blend offers higher borrow amounts and lower interest rates than any other lending protocol on the market.”

As for Arcade, to my surprise, he said the loan business was doing better than expected. The platform had about 7,000 active wallets linked, an estimation for users, Frank told me, compared with Blend’s 988 unique borrowers, according to Dune.

Frank said Arcade has seen even more people willing to lend than people seeking loans because of the high APR (20% on average). I’m still unsure of whether 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 45 Ether ($81,600) loan at a 9% APR—lower than the 9.5% APR on his loan for his Toyota Tacoma.

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 appearances can be edited using a companion app. The collectibles are being managed by Integral Reality Labs and will be recorded on the Polygon blockchain.

Sky Mavis, the company behind Axie Infinity, launched a lite version of the Web3 game for mobile that doesn’t require buying NFT Axies. Axie Infinity: Origins provides players with “starter” Axies—the fluffy, fighting protagonists of the game—but players with existing Axies from the desktop version also can use theirs, Decrypt reported.

The developers behind Web3 game Axie Infinity launched a new mobile app.

Courtesy of Sky Mavis

Web3 company OneOf and Globe Entertainment released a series of printed photographs of Marilyn Monroe that double as NFTs. The 40 photos (eight inches by 10 inches) include a near-field communication tag on the back that can be used to bring up each photo’s blockchain-backed certificate of authenticity. The pics, 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. Created by PMI, which also makes products for the video games Fortnite and Among Us, the toys are Pudgy Penguin’s attempt at reaching more mainstream consumers.

Horizon Blockchain Games integrated its wallet and infrastructure stack, Sequence, with Polygon Labs’ Polygon Supernets, which helps app developers customize and extend blockspace based on their needs. Horizon’s Sequence aims to unlock improved scalability, security, and user experience for blockchain tech.

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