Sunday, May 8, 2022

Fringe Finance: "People Are Taking Out Loans Against Their NFTs—And Defaulting"

First up, From VICE, October 15, 2021:

The endless search for profit is spawning increasingly ridiculous schemes centered on the financialization of NFTs.

In the ongoing speedrun to turn everything into a non-fungible token, savvy traders and entrepreneurs have recently taken a few steps to squeeze more investment opportunities out of their JPEGs.

Case in point: it’s now a thing to take out a loan and offer up an NFT as collateral. Take NFTFi, a peer-to-peer lending platform described by Coindesk as a "pawn shop for NFTs." The core premise is that you can mortgage your NFT in exchange for other crypto that can be sold for cash while keeping your NFT safe—if you can repay the loan.

NFTFi told Coindesk it had done over $12 million in volume since its launch in June 2020, with an average loan size of $26,000 and as high as $200,000. As you might expect, crypto-loans backed by JPEGs on the blockchain come with some risk for both parties. Default rates are just shy of 20 percent, the platform told Coindesk. Sometimes, that comes with some pain. 

The Block recently reported on a trader who borrowed 3.5 ETH (around $12,000) on NFTFi, offering an NFT that had last sold for 3.25 ETH. Over the next three months, the value of NFTs from the same collection skyrocketed to around $300,000 on the low end. On October 10, the loan period ended, the borrower failed to repay the loan, and the NFT—now worth many times more than the original loan—was taken.

That particular NFT had already been offered up once before as collateral for a loan that its previous owner defaulted on. That means that this JPEG has been part of a chain of loans and defaults, and now is in the hands of a third owner....

....MUCH MORE 

"Default Dear Brutus is not in our stars, But in ourselves, that we are underlings."
—not quite Julius Caesar, Act 1, scene 2,

And from UAE Exotic Falconry & Finance

Much More at UAEEF&F

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