2022 has been unfavorable to the crypto market. Price crashes, large-scale hacks, and endless market volatility have all gone to a new dimension with some notable projects crumbling. Nevertheless, DeFi lending has been able to withstand the storm. In fact, the usage of NFTs as loan collateral has been on the rise.
The latest such occurrence involved a loan worth $1.3M backed by the collateral of two notable NFTs.
How it Unfolded
On September 27, a Twitter user with the handle @PltTiger made a revelation about the detail of the loan. According to the Tweet, the loan facilitation took place on NFT loan platform Arcade. The borrower—a group known as Fragment—successfully used two mega Mutant Apes as collateral to obtain 1000 ETH, payable in 90 days. See the tweet below:
Sources from Decrypt, however, have revealed that the loan was obtained in a bid to facilitate the acquisition of a stake in another project known as Applied Primate.
Part of a Rising Trend
The Mutant Apes NFT borrowing is not the first such mega DeFi loan to have been obtained in 2022. There have been previous such loans with other bluechip NFTs, CryptoPunks being the most notable example.
Last March, a user successfully raised $8 million by collateralizing their 101 punk collection, while another user successfully raised $8.3 million in DAI last April through the collateralization of 104 CryptoPunks from their collection.
A Smart DeFi Move
As exorbitant as this loan might seem against two Mutant Apes, the decision looks to be a smart one for Fragment. Obtaining the loan gave Fragment the opportunity to make a quick investment in Applied Primate. The 44ETH interest over 90 days, therefore, seems like a small price to pay.
On the other hand, obtaining a DeFi loan is a better alternative when compared to auctioning off the rare NFTs on marketplaces or auction houses. Though the loan attracts 44ETH interest, the borrower still has ownership rights on the NFTs.
The only condition for losing the NFTs in this instance is in the event of a default which will immediately grant the lender control over the art.