CryptoPunk owner secures $3.3M NFT loan on Nexo
Much like the era of DeFi lending, NFT-backed lending is increasingly becoming a norm. An anonymous CryptoPunk owner was able to use two of his pixelated avatars as collateral to secure a loan of over $3.3 million.
The said loan was issued by crypto lending platform Nexo at an annual interest rate of 21%. It involved a number of parties, including DeFi and NFT lending platform Arcade and investment manager Meta4Capital. “With this multilateral partnership, we are demonstrating the fusion between traditional, decentralized and crypto finance,” said Nexo’s Head of DeFi Strategy, Kiril Nikolov.
According to Bloomberg, the transaction demonstrates how sophisticated the NFT lending market has become.
The complex deal was structured with Nexo, a centralized crypto lender, issuing the loan on Arcade, a peer-to-peer marketplace for NFT loans.
For the uninitiated, NFT-backed loans are quite similar to traditional loans, with the digital asset being used as collateral. In the case of Nexo, users can get instant liquidity between 10% and 20% of the value of their CryptoPunk or Bored Ape Yacht Club NFT.
Liquidity is usually in stablecoins or ETH and NFTs will not be liquidated even if their value drops after the funds have been borrowed. However, unlike traditional finance where borrowing rates and annualized rates are based on your credit history, rates often range from 12% to 15% in NFT loan markets and depend on the NFT offered, as well as the market conditions.
If a borrower fails to repay the loan and interest at the end of the loan period, the lender may collect the underlying NFT.