NFT lending: the good, the bad and the ugly

Transcript

gmgm welcome to another episode of web3 Academy your one trusted source to capitalize on the next big phase of the internet don't get caught in the hype cycle I'm Jaybird joined by my co-host Kyle reedhead and we believe that self-custody is going to change the world that's why we're carving a path for doers to confidently build and invest in web 3. what's up Kai welcome back thanks man it's good to be back was that a conference teaching all about self-custody last week or this past week so it's good to be back here and what a crazy freaking week it's been in this space we got meme coins going crazy we've got nft leveraging now the Hot

Topic and that's what we're going to discuss today yeah we're gonna jump right into it is nft Lending good or bad we'll debate a bit about whether it's good or bad but we're also going to talk about what I think you and I both want to bang our heads against the wall for is like really what is the future here of digital assets and this financialization of digital assets and currently we're just in this market where we're all investing on pfps and like does that make sense where are we really going with this and what's really the potential long term and how does something like blend by blur their new lending platform their new lending protocol fit into this long term because I think right now there's a lot of fear

and a lot of scary times for people in the market because when something like a lending a leverage based protocol comes out when we're already in a bear market and could potentially push us lower we saw how bad leverage can be that's what put us in this bear Market in the first place right leveraged with everything that happened with Tara Luna and and then Celsius and all these others it was leverage that got everyone into this problem and now we're saying hey let's leverage up our nfts that are already what is going on so anyway let's discuss that and let's figure out if this is a good thing bad thing or what do we think let's figure it out but before we do we'll just take a minute to hear from our sponsors the future of social media is here and that future lives in web 3

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your spot or if you become a pro member you can get an even bigger discount so GoPro today and we'll see you in Lisbon Portugal the 9th of June at the Epic web 3 conference welcome back this topic came up because Fuller launched blend this past week which is their lending protocol and we have seen a lot of action on it already over 20 000 eth already loaned on Bland it's actually become the largest nft lending protocol on chain to date as of I think like today you'll be hearing this a few days from when we're recording this but it's grown rapidly now I mean it's grown

rapidly partly because they also announced that you get blur tokens and they're incentivizing you and rewarding you to use it you guys can't see the camera right now Kyle is making a poopoo face for that but blend aside The nft Lending ecosystem is nothing new there's been products in this space there's been down there's arcade XYZ there's nft Phi so this is something that's been happening for a while and it's not small there's over 400 million I think 450 million in total value locked within various nft lending protocols there's 21 protocols across a few different blockchains although most of them are on ethereum so this is nothing new and lending in general is nothing new to any

Financial Market it's actually a big part of any Financial Market where I want to start is I have a lot of worry when you bring lending into a market of uneducated Raiders and uneducated borrowers and that is what most of the nft market is I'm gonna try to be cruel and call people dumb I don't think you're dumb I mean more so that you are not Financial educated you're not aware of basically the advanced math that goes into why you know Banks make the money that they make and how they're able to set themselves even the most educated Finance people in the traditional World

get it wrong right like we got Banks blowing up left right and Center because they're over leveraged we have every Point all the like the amount of C5 banks that blew up in our space last year and these were all Finance people that came to space like right leverage in general is absolutely ridiculous in most cases especially in an asset I mean that is extremely volatile which we've been saying crypto for a long time and now we're taking it to the the thing that's even there's only one thing in the world more volatile than crypto assets what does leverage do leverage leads to more volatility because when you have people who are taking out loans and then

floor prices are going down well then those loans get liquidated it pushes four prices lower right when you have people taking out loans on the rise they're taking out loans to buy more they're getting more leverage it's pushing more liquidity into the space and four prices are rising so it's scary when we're in the position that we're in right now to think about is it a good idea to buy a crypto Punk or an azuki for 80 on loan and the rest you put up front so you're buying a nazuki for like two e's is that a good idea when you don't even know what the business model of azuki is and if they're gonna if money's even gonna come back the risk is

just so high and so look I a gut wrench reaction to this that I was scared for those who don't understand what it means by buying a leverage think of like just a mortgage for a house right you put down five percent or twenty percent or whatever and then the bank lends you the 80 percent or the 95 to cover the rest of your house you now own the house but you have a you know 80 to 95 loan of the value of the house that you have to pay back and then there's interest on that right that's essentially what this is for nfts can you think about that just in case you don't understand like Financial talk a house makes sense like mortgaging a house houses typically increase in value over time especially

land right I mean obviously there's major markets are you saying our beloved jpegs aren't going to increase in price over time Jason yeah I am saying I am saying that because like what's the equivalent what's the equivalent of what we're doing with nfts it's like you had this example with uh Soho House what did you send right well okay so let's back up first second here so like I think that taking a loan against a non-fungible thing is not a bad idea I think it's a great idea actually so when I heard Blairs do this it's like oh this is extremely smart of course this is where this is going to go but that's because I believe that everything will be tokenized and everything will be an nft right so like your house and your car the pink slips your car these will all be nfts not pieces of paper in the

future and so why shouldn't I be able to take it alone against my and use my car as collateral or my home as collateral right or buy a car or buy a house using a digitally native protocol to get my loan rather than using a bet makes complete sense now the problem is we're not there yet you can't for the most part get a house or a car or that kind of stuff through a loan yet as an nft yet sorry yes another big thing is in the physical world Arts is often something that you put up as collateral to take it alone to then go and buy other things so like that makes sense the problem here in this space is that most nfts are neither a house or a car I mean summer arts a lot of them are

like these just stupid pfps that are a collection of a promise of a potential metaverse or a game or like whatever the thing is they want to create but like they're just these like membership pictures that people are speculating on and that's why these things are so volatile and so like to me when I think about this it's kind of like buying a membership to like solo and then like trying to leverage it or not even leveraging it it's trying to get a loan to buy a Soho membership you know there's like people like I want to look so cool I want to be part of this membership right so host and I don't want to sit by the pool and take pictures on Instagram that I'm at this like beautiful place but I make you know a grand a month so I can't afford it so

I'm going to take a loan to buy this like extremely expensive membership pass which just makes zero sense except in the case in this analogy they haven't even built Soho House you've bought a pfp right and you get access to a Discord yeah yeah right exactly so it's even worse I'm bullish on the idea and I think we need this and like this is coming so this is a great experiment for what will be I'm glad that so far I think there's only what this is just crypto punks and two others that you can use right now there's only three collections that you can currently right which are fairly low volatile nft assets yes for the most part so like great place to start I hope that they just don't open this to all assets because that's gonna be an absolute [ __ ]

show because again people are buying these nfts that have no idea what they are even the smartest people still don't know what these things are yet still don't know how they're going to react with different markets and things like we understand how equities act in markets we understand how gold acted markets we understand how houses act in markets for the most part you still have those like Black Swan events like 2008 but like for the most part those have been around for so long that we understand them so makes sense that you can take out loans to get them or use them as collateral in the crypto world and especially in Ft world this doesn't make a whole lot of sense now eventually it will as I said everything is going to be tokenized and this just makes complete sense right now though I don't know I wouldn't use it

definitely not yeah I don't even buy these kind of nfcs because I think they're all ridiculous let's just make a point here that I think is a point that you and I both believe in I was a little bit late to this one you probably believe this from the beginning is that nobody should ever buy an nft if what you are buying in your head if you're like if you're going around saying I bought an nft I buy nfts no no that is not what you're buying you are buying a membership pass you are buying a ticket you are buying a profile picture although I think we can both agree that profile pictures probably don't have a ton of utility and I don't know if that

one's going to get it very far maybe a few maybe crypto punks is a profile picture maybe that one or you're buying a house in the future so we need to flip the script on the language that we're using and we need to stop saying this isn't even necessarily about nft lending right this is about creating a Marketplace for peer-to-peer lending so that when more things are wrapped as an nft to prove ownership to prove authenticity to validate and verify then it'll be easier to take out a loan against that the unfortunate thing is this this is an experiment for when everything gets wrapped into an nft and then we are getting mortgages for our homes and

we're buying arts and using as collateral doing all the stuff it is going to make the ability to do those things so much so much easier getting a mortgage for your house right now is pain in the ass and a lot of people are getting it from banks that are failing at the same time it's like it's a joke to be completely fair but when it's all on a digitally native Marketplace on a blockchain where you can freaking get your mortgages without even having to speak to anyone and you can sell your mortgages and trade your mortgages like it's going to be pretty amazing I think right now we're probably going to like I don't know what it's going to do for the market but it's probably going to be a mess for a little while but the only thing I like is like this is a way to

experiment to figure out how do we using protocols get leverage and get loans right like we had to go through this with D5 in the crypto world like we've done all this with tokens like erc20s not non-forcials but fungible ones and again it was a [ __ ] show when it first came out but we figured it out and now like it's pretty normal to take out loans from your fungible tokens using like maker down stuff it's now like pretty standard for anyone who's in the space and so but it took a while to figure things out and you know a lot of things happened people got liquidated like crazy and now like people start to understand how you do it what's good values what's good ratios for your loan to like how much Cloud are you gonna put up things like that and say about like

homes for example like they don't let you really do it unless you're at least five percent because they kind of understand how this stuff works we're now like what five days into this well I mean I guess we've had other protocols but five days into this like a real one that's actually big I mean it's Gonna Take Years for the stuff to actually be a little bit more normal and make sense so I think it's good we got to start somewhere I don't know I feel like it's going to terrorize some people in the meantime yeah I mean we've got to be building we talked about this and we talk about this all the time on the podcast like doers be doing like please build everybody out there should be building right now is the best time to be building the challenge is when what we're building is

this financial layer that involves a lot of people's money there's going to be a lot of people that lose the problem is that okay so it's very risky we get that not only is it risky but now they're paying people to take risk they're saying hey if you do this we'll give you rewards in a couple months from now when we launch our blur token so they're literally incentivizing people to take the tons of tons of risk whereas like you always need to experiment with new ideas like this which is great like when mortgages first became a thing they had to experiment and I'm sure some things blew up when they did that over time but like they didn't incentivize people to do it it wasn't this rush for anyone in the world could do it it was like you know what I mean it took time and they

slowly did it whereas this is just like okay free for all everyone like let's go and not only let's go but like we'll pay you to like let's go so it's like let's [ __ ] go and I mean hey that's how we do it in web 3 I guess but I just hope real bad things don't come from this yeah I mean you got to give a shout out to the blur team for shipping good products yeah continually shipping good product for solving their problems because they basically had a liquidity problem because everyone was leaving the nft market as you said before we hit record everyone's moving their money into East Bitcoin or Pepe and so what do they do well they come out with the new product that brings more liquidity so I was looking at the stats today and since

blend launched the daily transaction volume on blur 20 is through blend through loans so they're increasing their liquidity as a result of doing this but again everything that blur does is just propping up the market their volumes are all fake right originally and I mean still now it's all wash trading or it's all airdrop farming right so their volumes are not real and then their volume started going down because people stopped they're like I actually don't care anymore and then they introduce leverage so again you have fake volume it's just I don't know to me I don't love it we have to go through the these things to get the good stuff so like I don't know I'm kind of torn if I think this is a good thing or

not long term I think is a great idea it really depends upon the audience you're speaking to other perspectives that you're viewing it from because it's not good for trading pfps like buying and selling pfts this is not good and that's because most people are doing right but for art I think it's great but it's actually really really cool for art but we don't have enough valuable like extremely valuable art I don't think in the web 3 space yet like as nfts like there's some I mean I don't think that there's a ton crypto pumps the denzas there's definitely not a ton and there's not enough people who understand that and buy them either right like in the physical world there's a lot of art buyers and there's a lot of artists and there's a lot of art worth a lot of

money and so yeah you need financial services around that in the digital world like we're going there this is why I think we need this stuff we just don't have that many people in here that are buying digital art that are really expensive you know but hey a lot of people on blur are pro Traders I don't know if they're art collectors but they're definitely fro Traders at least they're somewhat experienced and if they lose their money on this like they're probably not going to be living on the street I hope yeah I guess those are the people that should be experimenting with this like right right I mean it's all whales on there so let's let the whales blow up I'm okay with that didn't we all just make it together whatever happened to wag me right but imagine openc launched a very easy ux way to take loans against

your nfts and it was all retail doing it like that would be scary at least blur and blend is like it's very traitor good point hype application so like your average person's probably not even gonna know how to use it they're not um right which is saying like you try to do options trading and things like that in the traditional world it's very very difficult it's like retail people can't even do it I don't know if there's anyone to do it I guess blur should do it it's a good point all right well in closing this is good long term and neither of us have any idea what it's going to be Shimmer Turf I think the key takeaway everyone who's listening here stop thinking of the NFC Market as pfps yeah I was at a conference and there was even a presentation on that and the idea

that they're just calling pfps nfts like that's all nfts are and it's not it like you said you don't buy nfcs you're buying whatever the thing is it's a house it's a membership pass it's a gaming asset it's a art like whatever an nft is just a rapper it's a clear rapper there is no it's a woozy-wassee you know what I mean the thing you're not buying it's just the unique identifier for it that's it yeah it's like saying you're buying a MP3 no you bought a Drake song you know what I mean I bought an mp4 no you bought a [ __ ] DVD you bought a movie the same idea it doesn't really make sense so anyway I think that's the key takeaway and then when you understand that you start to go oh okay of course we're going to take loans

against things that are wrapped around nfts right digital Goods whatever you want to call it so when you kind of zoom out a little bit broadens on what these things are I think it all kind of makes sense but we've still live in that world right now no we live in the DJ and everybody's AP into Pepe world so well there it is I mean we told everyone we can have to go not to buy it and it's now 15x since we told you guys not to buy it so you know that's life so don't listen to us we're investment advice good or bad I mean look here's the thing though that bugs you dude I don't even know if we're supposed to get into meme coins right now but all I'm saying is we actually didn't say don't let we said put one percent in I think Yem said that

yeah which would be if you put one percent in right now you've done you've been very happy as long as you took some profits but also like how many neem coins have come out in the last month in the last month shared we shared a guy that's been rugging what 120 in the last yeah was it 60 days or not 30 days or whatever you got lucky if you put it in Pepe great don't ever put a lot in there but if you did cool here's the advice I'd give you which is advice that Kyle gave me that I did not listen to the day I bought my moon bird I don't think it was the same day but like the next day Kyle and I are on a call it went from 80 to 24 East and Kyle said sell it man and I was like no way absolutely not Donna

had the next board API club and you know I've learned a lot from this lesson when there is profit you take it off the table at a certain point the worst investment decision that a lot of people make is this feeling of like it's only gonna go up it's gone up it's gonna keep going up and you have to take wins off the table otherwise you're on an investor unless there's fundamental value and fundamental reasons for it but remember even bloombergs although it's now considered someone of a blue chip project still does it hasn't delivered anything yet so fundamentally there is nothing to support it being 24e you know in the future it might be sure that's fine right but holding Ethan Bitcoin

that makes sense yeah fundamentally these are very strong assets with good tokenomics and lots of users and fundamentally there's something there there's more future to it which is why you would hold it because there's potential growth but at least it has something foundational to it same with apple and Amazon Etc right but Pepe and moon birds back when you first bought it they have nothing right so you got to take profits of those things exactly like what I should have done was I should have sold my moon bird taking the profits off the table and then buy back in with the same amount that I started with so now I've got prophecy like with Pepe that's exactly what I would do right now right I'd sell most of my pepe so I take some profit off and I'd keep some a small percentage for fun right

thinking that you can time the top is the worst mindset you cannot can't have any topics can't have the bottom you can't type the bottom either no one can do that be safe out there everybody you got any closing thoughts you gonna say something okay nope that's it I'm gonna let you do you're the closer all right I'm gonna bring this one home by saying don't take an nft loan unless you're investing in something that's not a pfp well you can only do it for bfps right now on blend oh the dad that gets us into the is crypto punks of pfp or is crypto punks art which I don't know if we want to have that conversation right now no no all right everybody thanks so much for listening in have a great week we're coming at you this Wednesday with a deep dive on the nft ecosystem and where

we're at in terms of investing should you be putting money in FTS which projects are looking good we had Gavin Purcell come on the pockets come over here price jpegs and we'll see at the end of the week with the roll up have a great week check you later thank you for listening to web3 Academy we hope this helps you along your web 3 Journey if it does please share this episode And subscribe so you don't miss the next one nothing in this podcast was Financial advice crypto and web 3 can be risky you can literally lose it all in fact if you invest on account of what we say you probably will lose it all so don't do that in all honesty the point of this podcast is to remove the noise of markets and price and focus on utility and implementation anyway so you should

not take any of this as Financial advice thank you friends and see you in the next one