NFTs have skyrocketed in value since their rise to fame in 2021. Despite fluctuations, the massive price of many NFTs has made them secure collateral when looking for crypto loans.
The case of one NFT collector, in particular, has drawn attention, they used two rare CryptoPunks as collateral to secure a $3 million loan from Arcade.
Arcade is a peer-to-peer lending platform that aims to match NFT owners with potential lenders that are interested in doing business. According to statistics from the website, the platform has raised more than $9 million in loan transactions so far.
Although the $3 million loans that happen have the attention of everybody, Arcade has many smaller-scale transactions of significance as well. Just last week, NFTs with an estimated value of $150,000 were used as collateral for two months.
Gabe Frank, Arcade’s CEO, claims that:
“It looks very similar to that model in that high-net-worth collectors want to use their locked up capital more efficiently. For them, it comes down to capital efficiency, being able to leverage their assets and either buy more NFTs or invest elsewhere to earn a higher rate than an interest rate on loan.”
To Gabe, NFTs are a convenient way to securely take loans while continuing the tradition of fine art being used as a tool for lending. Currently, the company offers loans against only the most expensive and highly valued NFTs but is considering expanding operations and allowing other NFTs to be considered.
Although the loaning opportunities appear very lucrative, many experts are concerned. One reason is that peer-to-peer trading platforms mean there is no official supervision of the process. Furthermore, the platform is still new, with no backing that prevents exploitation, hacks, and scams from happening.
