NFTfi says it has raised a seed round of $5 million to continue pioneering the financialization of NFTs. According to NFTfi, the round was led by 1kx, an early-stage crypto fund and will allow NFTfi to grow its operations, marketing, and product development teams to keep up with fast-growing demand. Additional investors include Sound Ventures, Maven 11, Scalar Capital, Kleiner Perkins, and others.
NFTfi was founded by Stephen Young in 2020 as a blockchain / smart contract-based, loan marketplace that allows NFT holders to borrow against their NFT assets in the form of peer-to-peer cryptocurrency transactions. Once terms are agreed upon, the borrower locks his/her NFT into a trustless “escrow” smart contract. When the loan is repaid, including interest, the NFT automatically returns to the borrower’s wallet. If the borrower defaults on the loan, the lender receives the NFT.
NFTfi reports that it currently supports over 100 NFT projects, including Art Blocks, Bored Ape Yacht Club, Cryptopunks, Autoglyphs, Meebits, and VeeFriends.
“Our major goal is to do for NFTs what DeFi achieved for bitcoins. When DeFi was introduced to cryptocurrencies, the market experienced an explosion of activity and liquidity.”
Young said
“We really want to act as a catalyst for the NFT market, releasing some of the value in these NF T’s so that it can be poured back into the NFT community and market to help develop the field further,”
Young added.
How it works
- A user can come to the platform to borrow $10,000, different lenders would propose to the borrower offers with varying interest rates and payments terms, from which the borrower could then select.
- Meanwhile, the borrower will need to submit an NFT as part of the transaction. When the transaction is made, the NFT gets transferred into NFTfi’s smart contract (no one, including the NFTfi team, will have access to it) while the borrower receives the money.
- Once the loan gets paid with interest to the lender, the NFT returns to the borrower’s wallet. If the loan is not repaid during the allocated time, the lender receives the NFT.
- NFTfi users apply a common practice in the traditional art world where banks, big galleries or auction houses offer loans to artists to determine if an NFT is worth a loan or not.
- Typically, in the traditional market, loans are roughly 50% of the artwork’s value. On NFTfi’s platform, lenders make evaluations and give borrowers up to 50% of their NFT value as the loan principal.
- So, if an NFT is worth $20,000 at the point a borrower needs money, lenders are likely to offer not more than $10,000 as a loan. The interest rates, however, vary depending on the lender and assets. NTFfi takes a 5% cut of the interest earned on every loan by lenders, but it doesn’t make anything on a default.
