NFT-Backed Lending Market Rises, USD 1.4M Borrowed With an NFT as Collateral

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Autoglyph #488. Source: A screenshot/larvalabs.com

Non-fungible tokens (NFTs) are increasingly being used as collateral against loans. Recently, the possibly largest ever such loan was issued for USD 1.4m using the crypto lending platform NFTfi, with the Autoglyph 488 NFT as collateral.

Autoglyphs are an “on-chain” generative art collection made up of 512 assets on the Ethereum (ETH) blockchain. The collection is created by Larva Labs, known far and wide for its pixelated digital avatars dubbed CryptoPunks.

Using NFTs as collateral works like all other forms of collateralized loan, only with a slightly higher interest rate. For instance, annual lending rates against punks, which are arguably the most valuable NFTs, are generally between 15% to 20%. 

In the case of the loan secured by Autoglyph 488, it has a 30-day duration at a 9.69% annual percentage rate (APR). Similar to other collateralized loans, the NFT will be delivered to the lender if the borrower defaults. 

Autoglyph 488 has not been traded in the secondary marketplaces, which means market participants have not found the opportunity to evaluate its value. However, the current floor price, or the lowest price for collection items, for an Autoglyph is ETH 299 (USD 1.3m). 

Meanwhile, Art Blocks, a programmable on-demand generative art collection based on the Ethereum blockchain, has recently recorded its highest loan on NFTfi. A borrower “received a 30-day loan of 250,000 DAI at an annual interest rate of 30%,” with Fidenza 291 NFT as collateral.

The idea of using NFTs as collateral has been around for some time now, but it has taken momentum with the recent surge in prices for popular NFT projects like CryptoPunks, Art Blocks, Bored Apes Yacht Club, and Autoglyphs.

Back in October, an NFT owner defaulted on their ETH 3.5 loan which was collateralized by an Elevated Deconstructions NFT, worth more than USD 340,000. Consequently, the lender received the NFT, raking approximately USD 330,000 in profit.

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Learn more:
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