Products and services that provide access to liquidity in blockchain holdings, primarily NFTs, are in high demand as more and more cash pours into the buying and selling of digital assets. This, complemented by the logical implications brought upon by smart contracts in the funding process, has created a peer-to-peer lending space that companies like NFTfi have developed marketplaces in that are now facilitating multi-million dollar loans.
According to NFTfi, their latest $8.32M loan at 10% APR for 90 days “eclipses” the previous record of an NFT-backed loan that was funded earlier this year, that used 101 Cryptopunks as collateral to unlock $8M of liquidity within those NFTs. The borrowers were all anonymous.
When asked about how to balance crypto’s fundamentals of decentralization while also making an effort to actively incorporate blockchain technology into legacy financial institutions worldwide, NFTfi CEO Stephen Young told deCashed that it comes down to the digital-nativeness of the user.
According to him, despite the access marketplaces like his give to either those who are holding lots of value in NFTs and are cash poor, or those who are looking to put their digital assets to work as lenders, it’s not for everyone.
“There are certain people that more of a centralized offering is better for,” said Stephen Young, CEO of NFTfi. “If I was going to get my Mom to buy crypto, I would just tell her to buy it on Coinbase and keep it there.”
Young spoke about how many people don’t want to deal with things like digital wallets and private keys that make up crypto’s “ideologically pure” ‘decentralization’ mantra. “For my Mom, self custody is not appropriate.”
Young touched on how easy-to-use centralized platforms allow different types of financial products inspired by blockchain technology to become accessible to a larger pool of potential borrowers.
“I can see centralized institutions like Coinbase making peer to peer loans viable to users via their platform,” said Young. “With all of their normal KYC, customer support, and everything they do, but they use something like NFTfi as a settlement layer underneath that actually just executes the loans.”
With APR-based scrutiny from regulators pertaining to disclosure being a major factor in the ongoing struggle in the American small business lending space, crypto regulation’s looming presence on the horizon in the states brings lending marketplaces like NFTfi into serious question when it comes to their function in regulated space.
Despite showcasing that their record funding came with an APR of just 10%, some of the loans being processed in the NFT space have calculated APRs of well over 100%.
When asked about how to justify the fairness of a financial product that has APR percentages in the hundreds, Young spoke on the financial literacy of his customer basse, citing play-to-earn gamers who have created streams of digital incomes or NFT flippers looking to unlock liquidity as part of a broad moneymaking strategy.
“Almost all of [the borrowers] are making way more than that in return by putting that capital to work,” said Young. “Obviously it doesn’t always work out for people, but these are people using these things as financial tools as part of a broader strategy during in which that type of transaction makes sense.”
In such a new space, Young said right now his focus is on facilitating a place where those with large amounts of digital assets can best leverage them for their liquidity. ‘These people are NFT rich, and cash poor,” said Young.
When asked about long term practicality, Young hinted at the smart contract being the key facilitator and point of value in these types of financial products being widely incorporated. “[Smart contracts] allow a speed of a transaction that you can’t really do in the real world,” he said. “I think that it’s also going to allow us to involve financial products that you can use in the real world.”