Ciobanica, also known as Silver Surfer, is a digital art collector who has submitted a collection of ten so-called NFTs by well-known artists Pak and Fewocious to the site, which he claims is worth $5 million. Soon after, Genesis, a company that loans cryptocurrency to borrowers, gave him a six-month $1.25 million loan at a 7.5 percent interest rate, the equal of a 15% annual rate.Soon, Ciobanica thinks that the money he borrowed to invest in early cryptocurrency projects will pay off. Is he afraid that he will lose his NFTs if he doesn’t pay back the loan? Not at all, he said.
They are increasingly using services like Arcade to find people who own NFTs and want to use them as collateral to get money. So people who put money into NFTs, which are becoming more popular, can get money back without having to sell their digital assets to get it.
Lenders are interested in using services like Arcade because they can charge interest rates that are much higher than traditional loans. In theory, they could also own an NFT that was used as collateral if a borrower didn’t pay back.
The loan to value ratio—calculated by looking at the difference between the loan amount and the appraised value of the NFTs—can vary based on the kind of NFT, the period of the loan, and the loan to value ratio. According to Arcade CEO Gabe Frank, the average yearly interest rate for loans transacted on the website, which fluctuates depending on the term of the loan, is about 20%.
Borrowers may get significant amounts of cryptocurrency while keeping their NFT as long as they return it. This is preferable than having to sell the NFT, which is difficult since there are fewer bidders in the market for such valuable assets, according to Frank.
Loans are created when a lender accepts the borrower’s conditions or the borrower accepts the lender’s terms. It is only unlocked if the borrower pays the loan in full, plus interest, through the app, or fails and the lender is able to recover the locked collateral. Arcade takes a 2% cut of the loan proceeds, according to Frank. Larger loans have tiers of fees, he says.