Non-fungible tokens (NFT) are increasingly used as collateral for loans. Recently, arguably the largest such loan of US $ 1.4 million was made using the crypto lending platform NFTfi with NFT Autoglyph 488 as collateral.
Autoglyphs are an online art collection of 512 assets on the Ethereum (ETH) blockchain. The collection was created by Larva Labs, widely known for their pixelated digital avatars called CryptoPunks.
Using the NFT as collateral works just like all other forms of secured loans, only with a slightly higher interest rate. For example, the annual rates on loans with the most valuable NFTs are usually between 15% and 20%.
In the case of a loan secured by Autoglyph 488, the maturity is 30 days with an annual interest rate of 9.69% (APR). Like other collateralized loans, NFT will be provided to the lender in the event of a borrower’s default.
The Autoglyph 488 was not listed on secondary marketplaces, which means market participants did not find a way to estimate its value. However, the current minimum price or lowest price for collectible items for an autoglyph is 299 ETH ($ 1.3 million).
Meanwhile, Art Blocks, a programmable on-demand art collection powered by the Ethereum blockchain, recently received the highest credit on NFTfi. The borrower “received a 30-day loan of 250,000 DAI at 30% per annum” with Fidenza 291 NFT as collateral.
The idea of using NFT as collateral has been around for a while, but it has gained momentum with the recent price hikes on popular NFT projects such as CryptoPunks, Art Blocks, Bored Apes Yacht Club, and Autoglyphs.
Back in October, the NFT owner defaulted on his 3.5 ETH loan secured by Elevated Deconstructions NFT for over $ 340,000. Consequently, the lender received the NFT, making a profit of about $ 330,000.