Wealthy NFT owners are taking out loans backed by bored monkeys, CryptoPunks

Wealthy NFT owners are taking out loans backed by bored monkeys, CryptoPunks

Wealthy individuals, long accustomed to borrowing against Picassos and van Goghs, are now using Bored Apes and CryptoPunks as stores of cash.

In the latest sign that digital art and collectibles are entering the financial mainstream, an NFT collector this week put up two rare zombie CryptoPunks as collateral for a $3 million loan facilitated by a peer-to-peer lender arcade.

The Non-Fungible Token (NFT) platform specializes in connecting blockchain art owners with potential lenders. According to CEO Gabe Frank, Arcade has more than $20 million worth of NFTs in escrow.

Arcade's financing terms, Frank said, are comparable to art loans - a market in which hedge funds and other money managers underwrite loans on behalf of wealthy individuals who collect art. Bank of America, for example, has more than $10 billion in such loans.

“It looks very similar to this model in that wealthy collectors want to use their tied-up capital more efficiently,” Frank said. “[For them] it comes down to capital efficiency, the ability to leverage [their] assets and either buy more NFTs or invest elsewhere to earn a higher interest rate than an interest rate on a loan.”

The model throws credit checks and reserve assets out the window as both borrower and lender settle the loan without trust, employ self-custody and keep the transaction on-chain.

Arcade's loans typically last three months and charge 20% interest annually - less than credit cards, but still steeper than other bank loans. Fees vary, depending in part on the liquidity of an NFT.

“That’s kind of our niche, this high-end, long-tail market,” Frank said. "We offer this (over-the-counter) type of service for high-net-worth collectors who want to secure their assets. It looks similar to Sotheby's."

Noah Gaynor, CEO of NFT marketplace Parcel, told Blockworks this is another sign that “various protocols and primitives [are] bridging DeFi and NFTs.”

Gaynor added: “NFTs should be treated the same as any other asset, including their use as collateral.”

Arcade exclusively supports Ether-based NFTs with acceptable collateral, ranging from virtual properties to blue-chip collections like Bored Ape Yacht Club and CryptoPunks.

“We think that [around] 95% of NFTs are probably worth nothing,” Frank said. “But it’s the top 5% like the CryptoPunks and the Monkeys, who have market caps in the billions, that have a lot of staying power.”

Other crypto companies are following suit in the NFT lending game.

Crypto Lenders Nexo launched its first NFT lending desk in December and also accepted Bored Apes and CryptoPunks as collateral.

“An NFT can be anything and offer so many features,” Nexo co-founder Antoni Trenchev told Blockworks. “[In the future,] we’ll provide loans and finance people’s purchases of everything from digital real estate to gaming merchandise to limited edition Nike sneakers.”

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The post Wealthy NFT owners take out loans backed by bored monkeys, CryptoPunks is not financial advice.