A very long story short, we are in a bit of a crisis here, but more importantly, what do we need during a crisis? Well, money. But remember how your dad forwarded that “compound interest” YouTube video to you right after you got your first job? Exactly. So, now you don’t have much liquidity but a shit load of investments? Although, this basically means you can either sell your investments or can take out a loan against them and magically make money appear.
Ideally, intelligent people, maybe not me, but intelligent people prefer collateralizing their assets to get loans so you can pay it off once the market is green again while also being able to keep those assets. However, given that Bitcoin is below $20k and S&P500 has also recently sunk by nearly 4%, what the F do we have left to take out a loan against? Because honestly, if I were a bank, I would call security if, right now, you asked me for money against your crypto or equities portfolio.
Crypto Loans Against NFTs: How & Where?
Yes, you can take a loan against your NFTs, surprise motherfuckers! While it is not a new feature, it has become considerably prominent in the industry as cryptocurrencies continue to bleed.
But wait, how does it work? Okay, so NFT lending allows you to simply lend out your tokenized goods as collateral to borrow crypto or fiat. And where do I do it? For starters, you can simply hop by the peer-to-peer NFT lending marketplace NFTfi. But first, let’s break down what all can we do on an NFT lending platform? Of course, you can get a loan against your NFT but you can also earn attractive yields if you are lending out your tokenized goodies.
But like I already said, this is not a new concept. In fact, in the case of NFTfi, they started their NFT loans feature back in May 2020, using the NFTfi DApp (Decentralized Application).
Furthermore, for loans against your NFTs, you may even go to a crypto exchange that facilitates it. For instance, Nexo’s platform recently became popular as it began lending against NFTs on Arcade, which is a lending marketplace just like NFTfi. Last month itself, Nexo claimed to have arranged a $3.3 million loan through the Arcade, backed by two CryptoPunks Zombies. Oh yeah, did i forget to tell you that you can collateralize both, your Apes and Punks on Nexo along with other projects? Unless Yugalabs buys them too, then maybe you can just do Punks, Apes, and Meetbits.
NFT Loans: A Necessary Evil?
On one hand, NFTs as collateral for NFT loans is a blessing in plain sight, not disguise. However, on the other hand, the asset is highly volatile which creates more leeway for the loan process to be rather unstable, leaving the borrower in a financially insecure position. Awkwarrrdd… Okay, let me explain using an example, story time!
So last year, this NFT collector took out a loan worth over $12,000 in ETH on NFTfi. The borrower collateralized his ‘Elevated Deconstructions’ NFT which was roughly worth $39,000 when the borrower sought the $12,000 loan against it. But an unfortunate plat twist took over and within the loan period of 30 days, ‘Elevated Deconstructions’ became worth $300,000 when the OG Snoop Dogg took it under his wing. Following this, the borrower failed to comply by the terms and conditions of his loan agreement. And all he had left was debt alongside losing a high-performing asset.
Or most recently, the worries about people who collateralized their NFTs on BendDAO have started to arise. Several Bored Apes and Mutant Apes are on the verge of being liquidated if they don’t repay their loans or interest. Active trade Cirrus wrote a great thread about it on Twitter:
On the flip side, a BAYC whale called FranklinisBored, made a killing leveraging BendDao’s NFT loans to gather more apes.
Taking loans against your NFTs can be dangerous. It’s a double-faced coin, you take an increased risk on an already volatile asset. However, if you play it right, like Franklin, you have a chance to grow a lot faster.
Like always, understand the risks of your moves in this space. Stay safe and keep grinding!