Arcade CEO Gabe Frank explains to Decrypt that “blue chip” NFTs are driving millions in the expanding NFT liquidity market. NFT collectors are not content to use their tokens as NFT status symbols. They want to be able leverage their digital art as collateral for loans. Arcade is a peer to peer liquidity protocol for NFTs that makes it possible.
NFT collectors use platforms such as Drops, NFTfi and Arcade to tap into their holdings for short-term liquidity, rather than selling them for a one time payout.
Arcade’s website encourages you to “put your NFTs into work.” Borrow and lend against NFT assets.
In an interview with Consensus Austin, Texas, Gabe Frank, Arcade’s founder and CEO, explained how the system works to Decrypt. Frank stated that if you have an NFT worth 100 ETH, our team will value and appraise it. The lender will then decide on a loan to-value ratio based on APR rates and a term.
Frank, a Texas third-generation pawnbroker, turned his attention in 2016 to NFTs/Web3 and is well versed in the basics of valuing an object. The blockchain-based tokens used to show ownership of digital or physical assets are called NFTs. Valuing them has been difficult and contentious.
Frank says that the Arcade loans are not-recourse loans. Non-recourse loans are those where the lender has the right to seize collateral and take the loan in default.
Arcade knows that NFT collateralization can be a risky idea. Frank states that if the borrower defaults, the lender can claim the collateral in the protocol. The lender has the right to claim the assets, wrap it and sell it if necessary or keep it on their balance sheet.
Frank claims Arcade can’t access the NFTs. Everything happens through smart contracts. Frank states, “We are just the software.” “We believe peer-to-peer is the best way to get liquidity from this asset class because lenders have different risk profiles and want different assets. We also think that different risk appetites make it difficult for them to access liquidity.
Frank believes there is a growing market to collateralize NFTs. Arcade also has $25 million worth “blue-chip” NFTs in escrow. According to Frank, the NFT industry has received about $200 million in loans against NFTs.
If you are a fan of NFTs, you will be able to guess which collections are being collateralized. “We have done $25 million in loans against monkey photos. This is how NFTs look today. It’s not Bored Apes; it’s CryptoPunks.
