Using NFTs as DeFi collateral

Transcript

cool hi everyone um my name is rob massiello i'm the co-founder of a platform called arcade.xyz it's an nft lending platform today i'll be talking about using nfts as in defy it's collateral um kind of an over overarching uh topic kind of just why i talk about you know defy and nfts historically like why nfts you know or non-fungible assets rather have been historically good stores of value what we're kind of seeing is the blue chip actual nfts you can borrow against right now across the different lending platforms out there some thoughts about you know bringing in real life assets into d5 as well as nfts

um some of the platforms themselves the different variations out there a little bit about arcade um and some of the reasons we chose to make certain design decisions versus other platforms some challenges we're still seeing in the d5 space relating to using nfts and you know some thoughts i have about what's kind of next and what's coming a little bit excuse me a little bit about me um like i said my name is rob i'm the base in new york city i'm the co-founder of arcade.xyz i've been in the space since about 2016. um prior to being in crypto i did a lot of big big data machine learning stuff i owned and operated a bitcoin mine in montana back in 2017 and then started a

crypto company uh more analytics focused and sold that to a private equity company so been the space a decent while building a little bit about the platform we've built now it's called arcade as i mentioned it's a p2p lending marketplace basically let you use erc20s 721s and 1155s as collateral there's no term length loans there's no liquidations people we've asked get asked that a lot about you know what happens if the nft goes down in value they're term length loans there's no liquidations um we've done about 200 excuse me uh 25 million dollars in loan volume since uh the end of january there and some kind of big investors there as well our version two goes live next week which

we're pretty excited about and i'll kind of share a little bit about what that you know enables for people that have high value nfts looking to do something with them but kind of first like why have nfts as collateral um obviously people understand like nfds are worth a lot of money now but you know why should this be actually used as a in a defy way some kind of you know quick facts we pulled out for our report we're putting out soon the total number of nft traders right now is still um higher than at any point um in 2021 so the state of nfts as an asset class is still pretty strong right transaction volume even in the bear market remains really high

exams were you know about three weeks in all of 2021 as well so again nfts really as an asset class i think it's safe to say they're here they're being used it's still small but it's growing and you know we don't think that's going to kind of go away at any time some even we've seen people buy you know use board apes for instance to take out loans and use that as down payments on houses so there's real use cases here to actually use nfts in a d5 way historically you know non-fungible assets everything's a non-fungible asset that's not fungible right property jewelry arts these all have have vast lending markets fine art for instance has about a 50 billion dollar

lending market a bank of america for instance has a massive otc business where they do lending on all kinds of fine art they're starting to look at nfts as well there's also a rich history around non-fungible assets that are digitally native to not just physically you know physical assets out there um domain addresses you know if you owned you know pets.com has a great domain um there's things like you know the million dollar homepage it's like a really old website out there where people where you could buy pixels on the website um had nothing to do with crypto super old um but even stuff that's you know where nfts before they were on ethereum like rare pepes on on bitcoin kind of the main issues there

though have always been around centralization and the ability to authenticate these assets so if you you know if you owned uh um something that was um you know you know non-fungible but digital you didn't have a really a great way to prove that you were the owner other than um you know some going through a centralized entity like i can for an eight for instance for an email for a domain address so blockchain obviously solves this that's great as a categorically speaking nfts is for as collateral it's built there's millions of nfts billions in market cap there's only a few collections really that are like worth anything and actually can be used in a d5 way right so no you can't take out loans or do anything really interesting with nfts that are only

worth five hundred dollars a thousand dollars right the transaction fees alone on ethereum today just don't really make that possible and also lenders people you know counterparties don't really want to touch anything that's not potentially going to be worth something hold their value or be worth something even greater in the future but right now the total kind of blue chip nft collateral market cap is around 2.6 to 3.5 it's kind of a big big you know variation in delta there mainly because of you know the way we kind of categor you know calibrate you know how large the blue chip asset class right now for nfts is mainly look at the the floor value which i'll talk about a little bit and why that's not a great uh reference point so there's some disparity in kind of the

lower end to the top to the top end um you know the collections that actually are blue chips what we're seeing in the space right now pretty much three three main things it's high end art you know the fidenzas of the world the auto glyphs that really makes sense it's like they're like the closest analog to actual fine art right and also a lot of nft artists that you know put out fine you know this you know kind of these grails if you would you know they also give you prints as well so you know it almost it's a pretty close analog to actual real world fine art digital land again closest analog to in real life property assumes you know people will have a shared space with finite resources so digital land should have some actual

long-term value associated with it so people are taking out loans against that those kind of ass as well but the biggest one of all is you know pfps profile pictures avatars board apes crypto punks uh azukis clonex all those kinds of nfts you know the newest category of these three but you know the really makes the most sense why they have the most value it's deeply tied to the sense of identity and and you know online persona or kind of a reflection of oneself there's tremendous value in that we spend hours and hours and of our days on the internet on twitter and on slack and discord and you know having a digital representation of yourself that is not an actual picture of yourself has tons of value um also many of the pfps

have you know been very beneficial to the owners they've uh the projects have done air drops which have historically done very well especially in the with board apes and uh with you know apecoin and uh mutant names etc so those projects in terms of holding their value and being useful for as a for collateral have been you know really really uh successful um a little bit about you know in real life assets so we're starting to see some early signs of tokenization you kind of see this the picture on the side i think many people if you're familiar with nfts have heard about you know they're trying this guy in new york city who's trying to you know put a token out there that you know you can buy this this property

right this this this whole office building in manhattan which is probably kind of just a meme marketing stunt you know there's some issues around that right but you know the early tokenization stuff we've been seeing has been mostly around like luxury goods stuff like rolexes um watches things like that there's been some other brands i think as well who have done virtual items but mainly we're seeing some early signs of centralized entities that are issuing tokens representing uh a claim on something physical like like a watch for instance um and there's great benefits for that right it's a lot easier tokens make it a lot easier to do stuff much easier than securities or even the

physical asset you know in the traditional world if you had a rolex for instance one of the most pawned assets in the world uh you have to actually bring the the rolex to the pawn shop they have to hold it for you they usually charge for that and you know you have to worry about them holding you know putting it in good custody being insured if they're not going to um you know potentially you know do something nefarious with your asset you know pawn shops have been historically kind of a cd business there so you kind of have some counterparty risk there but you still have that with tokens as well so that's when one of the bigger challenges around kind of in real life assets being tokenized you still have the centralization issuing and redeeming risk

and there's some you know universal legality considerations as well that are not you know what's applicable in the united states might not be applicable in here in france so so a little bit a little bit about the platforms um kind of what the main platforms i'm mainly talking about lending today it's you know from a d5 standpoint but there's really kind of a few different you know variations we're seeing around d5 and nfts right now it's really around you know p2p lending which is you know what we focus on term length loans no liquidations pretty straightforward there's platforms like arcade nifty phy there's a number of other ones out there a pwn finance there's a bunch of them out there there's some that are doing pool borrowing which is very much like

an ave compound style platforms stuff like jpegs that's really based using oracle's around the floor prices it's stuff on you know chain link having a floor price for you know jpeg for instance i believe only focuses right now on crypto punks so they have a floor price oracle that is how you can you know measure what your utilization would be um there's a few other types out there there's like staking platforms like nftx basically deposit an nft into a pool you get a token redeeming a representing it it's an erc20 you can use that token in lots of different other kind of ways that fit the remainder of d5 pretty pretty nicely and then you can bring back your token

and redeem one so you could actually go to unit swap and go buy an erc20 representing a crypto punk bring it back to nftx and then get a crypto punk out of it which is fun because it opens up some interesting arbitrage opportunities where maybe the the floor price is cheap is uh higher than what the erc20 price is you could buy one for a little bit cheaper get a cheaper punk that way and then the kind of the last thing i'll touch on is really around fractionalization it's not so much in the lending capacity but it gives people basically the opportunity to buy fractions of you know high value nfts the big one i think we've seen was like the the doge the the meme doge uh that was sold by pleaser dally i'm pretty sure

which i think it was a their own sub dao in there um and yeah introduce gives people the ability to buy you know fractions of nfts that they probably wouldn't be able to uh afford otherwise which is cool um so a little bit about why we're focused on p2p why we think that's a the right model right now for for nft based lending so as i kind of mentioned earlier floor prices are not super great if you want to borrow against your asset at the most amount of of value to it um for instance you know if you have you know crypto punks for instance the floor right now on them is about 130 000 us dollars the upper echelon of crypto

punks is maybe in the tens of millions five million it's totally subjective right it's really hard to figure out but if you have one of the higher end assets you want to be able to take out the maximum amount of loan to value against your asset there um you don't want to be stuck you know being able to only borrow against the floor so the oracles out there right now are they're all pretty much against the floors um you know and that's just not going to provide you a great experience if you're a borrower to be able to take out you know as much value as you possibly can and just floors are just kind of not a great way to appraise assets um you wouldn't um you know you wouldn't get you know if you had a house you wouldn't want your house appraised against the

cheapest house in your neighborhood that's just you wouldn't want that so we think that you know at least right now given kind of where the infrastructure is at the best use case for borrowers to be able to have non-recourse loans gives them the highest potential ltvs because they basically they they work directly with the counterparty on the other side the lender to negotiate the best terms for themselves um so kind of my crypto punk example there you know if a three million dollar punk against the current floor that's like a max ltv of like four percent that's not great what we see on arcade right now is that max ltvs generally just kind of ballparking where we think the assets are probably worth probably upwards of about 70 or so um and and for us you know our version two is introducing a kind of pool like

feature uh of for from a liquidity standpoint offering collection-wide loans offers so very similar to how openc you can go obviously now and you can make an offer against the entire collection you can say hey i'm going to make you know i'll make i'll buy any nft in this collection for five eth right and now that's an offer that goes to anyone who owns the nnft in that collection we're introducing something very similar just with loans so if you want to say hey i'll lend you know hundred thousand dollars against any crypto punk out there um here's my terms and then people can come to the platform if they own that asset they see it as kind of resting liquidity so it's similar in the kind of pool like capacity there um there's a little sneak peek of our v2

user interface there it's kind of pretty kind of has a bunch of new features um i'm not here to shill that though um yeah as i kind of mentioned around some of the challenges around you know d5 and nfts there um yeah you know there's not great consensus on pricing you know oracles can t-wap against floor price uh floor prices on the markets um you know t you know floor prices can be easily manipulate manipulated um so you know that's some challenges there the universe of kind of lendable collateral is right now fairly small there's only kind of a number of blue chip assets out there so the market cap can keep going up as ethereum goes up and for other you know

you know other reasons but the actual number of assets to be able to borrow against um you know doesn't always increase right you we need more collections to you know achieve this kind of grail status if you will um so as i mentioned yeah super early for nfts and d5 just greater awareness needs to be we need greater awareness we need some consensus from a from an industry standpoint around pricing some sort of maybe consortium that's going to you know aggregate lots of different oracle prices greater interoperability across different landing protocols out there liquidity is still fairly shallow and connectivity amongst most the nft lending protocols and the greater defy protocols is super low

and yeah as i mentioned just kind of more monkeys we need more there needs to be great you know more and more assets but still still super early a ton of people making awesome stuff out there not just pfp collections but super cool art and yeah that's adding and contributing to the greater nft collateral universe so with that i think i'm probably right at the time so yeah thanks is my twitter if you want to follow me or ask any questions check us out i'll be around thanks uh