Non-fungible tokens, or NFTs, are becoming both, overwhelmingly popular and overwhelmingly valuable. Every day, several Bored Ape Yacht Club digital collectibles sell with six-figure price tags.
However, in the present environment, it’s nearly impossible to unlock the equity of your NFT collection without actually selling it. Whereas, if you owned a highly-valuable piece of traditional art, it would be possible to unlock the equity in the artwork by taking a loan out against it.
In the NFT world, while it has happened once that I can think of, taking out a traditional-style loan on your art is nearly impossible. However, if NFTfi has anything to do with it, that’s going to change incredibly quickly.
What Is NFTfi?
NFT is a company founded in February of 2020 with one goal. The company wanted to make it possible to take out the equity in an NFT in the form of a traditional secured loan. Today, the company connects borrowers with lenders, making a cut off of the interest paid in each transaction. Here’s how it works:
- The Borrower Signs Up. The person that wants to borrow the money would sign up for the NFTfi platform. Upon signing up, that borrower will be asked a series of questions surrounding the terms of the loan you’d like and you’ll be asked for an NFT to put up for collateral.
- The Lenders Provide Offers. Once you’ve provided your NFT as collateral, the lenders make offers based on the value of the collateral you plan on putting up. Each lender will offer a different interest rate and different terms to the loan, giving the consumer a competitive environment to shop in.
- The Borrower Accepts Terms. If you find a loan with terms that you find to be desirable, simply accept the terms and the blockchain transaction begins. Once the terms are agreed upon by both parties a smart contract is created that will house the NFT through the life of the loan. Should the borrower pay the loan as agreed, the NFT will be returned to the borrower at the maturity of the loan. Should the borrower fail to pay as agreed, the lender will keep the NFT, likely putting it up for auction as is the case with most property that becomes property of the bank as a result of a loan default.
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A very important piece of all of this is the smart contract. The process is completely decentralized and once the smart contract is created, it’s binding. Not even NFTfi has the ability to go in and change it. That creates several benefits for the lender and the borrower. Some of the biggest including:
- The Borrower Knows the Terms Won’t Change. In traditional banking, lenders sell loans and in some cases, sneak in fine print that causes the terms of the loan to change over time. With a clear cut smart contract, these issues are a thing of the past.
- Logged Transactions. Since the loan is paid back through the blockchain, every payment will be logged in the most accurate, and secure, way possible. So, data issues won’t cause mistaken defaults or maturity logistics issues.
- Access to Capital. NFTs are overwhelmingly valuable, and some collectors need capital, but aren’t willing to sell their collection. This new process makes access to the capital stored in your digital art possible.
The Bottom Line
For some time now, enthusiasts have been pointing to the ideas that cryptocurrency and NFTs are going to change the world of finance for good. This is a key piece of evidence in that evolutionary process.
With the launch of NFTfi, a company that just closed a $5 million seed round to continue innovating, enthusiasts are already cashing in on the equity of their collectibles, a giant leap in the evolution of finance and the Web3 industry.