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NFTs as Collateral for Loans?  


NFT marketplace

  • U.S. digital asset management firm Genesis is offering loans on NFTs 
  • NFTs combined with complex crypto finance products creates a new avenue for investors or collectors betting on NFTs to generate a yield or return on their collections  


Who says that they just sit there and stare at you?

As the burgeoning market for NFTs or non-fungible tokens starts to grow, investors or collectors are finding that they can monetize their appreciation for digital art, thanks to digital asset trading group Genesis now accepting NFTs as collateral for loans and derivatives deals.

For years, many art collectors and traders have often struggled with finding ways to monetize their collections, but increasing digitalization now provides a unique means of realizing some of those aspirations.

NFTs are unique digital tokens that can’t be replicated or divided and are typically minted on the Ethereum blockchain, using the ERC-721 standard, tied to a digital work, which can be an image, GIF, text, video or audio file.

By combining NFTs with the booming market for complex cryptocurrency financial products, Genesis is tapping into one of the hottest corners of the digital finance industry.

NFTs swelled into a US$40 billion market last year and despite weakness in cryptocurrency prices this year, enthusiasm surrounding them has not waned, with even China throwing its hat in the ring to embrace the technology, albeit without the decentralization.

Structuring products around NFTs would allow investors to pledge their tokens in a way that a traditional trader would use an asset to underpin a financial deal, such as a loan or a bet on the market.

Given the highly volatile price action for NFTs, Genesis appears to be taking a “safer” track, taking in only what it considers “blue-chip” NFTs that have some historical significance or liquid secondary markets.

The overlap between high art and high finance may be set to continue growing, with major brands in sport, alcohol, art and fashion, all launching dedicated NFTs in recent months, in an effort to ensure that they stay engaged with recent pushes into the Metaverse.

One of the most obvious applications for NFTs is their ability to prove ownership, which may be relevant for use in the Metaverse.

The idea that a digital item can be non-replicable exists only on the blockchain and can be expressed in the Metaverse provides a strong incentive for some of the world’s biggest brands to start minting NFTs.

Consider that a pair of designer shoes could always be knock-offs, but that same pair in the Metaverse couldn’t be copied because of the nature of NFTs that make them irreplicable. 


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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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