Paper 52: 2 ETH to 85 ETH in 5 Days
The genius trade you could have made with some research
GM - this is the BCheque Papers, edition #52.
I write about NFTs/crypto, and trying to make it independently in web3.
This is what we’ve got this week:
This Week In NFT World - Genius Trader Turns 2ETH to 85ETH
Risk On - The NFT Market Rips Up…On Leverage?
Memes of The Week
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Have a great day,
B
This Week in NFT World - Genius Trader Turns 2ETH to 85ETH
Game of Thrones NFT drop disaster
Game of Thrones dropped the Build Your Realm digital collectible experience this week.
Whilst the “Hero Boxes” - which contain a combination of digital collectibles such as Avatars, Resource Cards, and Story Cards - sold out at $150 each, they were widely ridiculed on Twitter for looking…bad. So bad.
A no-holds-barred - and correct - take from my friend and sophisticated market participant, Signal.
Smart trader turns 2ETH into 85ETH in 5 days
A smart trader bought a few Wolf Game parcels of lands and traded them for a CryptoPunk just a few days later!
The trade took place with prominent collector, Seedphrase, who gave up his Cryptopunk for the land because it held “69% of all of the water in one of the Wolf Game communities.”
If that sounds weird to you, the water is a particularly valuable asset because it relates to how much tax you can earn. (Appreciate that might still sound weird to you…but water is important in the metaverse too…obviously!)
Meme Card 52 by Grant Yun shoots straight to a 1.1 ETH floor
This week Grant Yun dropped the 52nd Meme Card in the popular The Memes collection by Punk 6529.
It is an edition of 1,400. The floor sits at 1.1 ETH after the mint at 0.06529 ETH.
These are minimum 10xs every drop at the moment lol. Don’t know if that is how it will continue, but I am here for it.
I seized mine.
The next Meme Card drop will be today. And I believe next weeks schedule is Monday, Wednesday, and Friday also.
Amazon, Coinbase, SuperRare cutting jobs aggressively
Coinbase will cut around 950 jobs - 20% of their jobs. (Coinbase shares lost 86% of value this year - ouch.)
SuperRare has cut around 30% of their workforce.
Amazon has cut 18,000 jobs.
This is a sober reminder of the reality of the macroeconomic situation.
But why is this important?
It is important because this is literally what the FED has wanted for some time. It needs to slow industry to get a grip on inflation.
And so why is that important for us?
Because it means we are getting closer to the point where the FED may say, “enough is enough” with the rate hikes.
The simple thinking being: rate hikes stop, can return to a risk on environment, crypto up.
I personally am cautious and think we could stagnate for a while - but think we are bottoming out.
Microsoft in talks to acquire a 49% stake worth $10 billion in ChatGPT owner OpenAI
ChatGPT is taking the internet by storm, answering everyones questions, writing everyones reports, and doing your kids’ homework (and helping me with some of this newsletter!)
I think it could very seriously rival Google in the near future.
OpenAI is currently raising funds at a $29 billion valuation.
Risk On - The NFT Market Rips Up…On Leverage?
Recently I spoke to a big lender in London about how loans for high value assets work. This is how Chat GPT wants me to tell you the story:
“I was talking to a big lender in London the other day and he said that in the traditional art market, you can maybe unlock 20-30% of liquidity against the finest art that exists in the physical world. But then I thought to myself, 'wow, the NFT market is like a superhero compared to the traditional art market.' It's like the traditional art market is Clark Kent, and the NFT market is Superman. It can fly, it has x-ray vision, and it can lend you way more money than Clark Kent ever could. I mean, people are able to achieve 50, 60, even 70% of loan to value loans in the NFT market. Can this last? Let’s have a think"
Me reflecting through ChatGPT
The NFT market is starting to mature when it comes to lending and I think we need to pay attention for a few reasons:
The traditional art market is worth billions of dollars ($448.92b in 2022) and has a significant amount of art-secured loans ($31b), while the NFT market is still relatively small in comparison ($11.3b of art with NFT-backed loans just over $500m).
Unlocking liquidity and improving the lending and borrowing infrastructure will be key to the long-term success of the NFT market.
Lending and borrowing platforms have emerged as a way for collectors to access liquidity using their NFTs as collateral.
The recent “bull run” in NFTs could have been instigated by leverage, which is inherently more risky than if there was actually fresh demand coming into the market.
So what is going on with NFT lending?
The NFT/DeFi ecosystem is unlocking dead liquidity on several NFT collections, and lending platforms are at the forefront of this movement.
Peer-to-Peer lending has over 60% market share when it comes to NFT-backed loans. This is due to the access to higher loan-to-value ratios for borrowers, ‘loan-to-own’ opportunities, and higher yields for lenders. P2P lending platforms are driving most lending volume in the NFT lending market. (We are seeing people almost use loans as a way to bid on assets.)
A good example is NFTfi: it is one of the leading platforms in the NFT lending market. Since it's launch in 2020, it has enabled a substantial amount of loans, totaling almost $300 million in cumulative loan volume on over 22,000 loans. While the platform started small, with only $300,000 in loan volume in 2020, it has seen significant growth, facilitating $260 million in NFT backed loans since the beginning of 2022.
So is this lending good?
Sure! (Well, maybe…keep reading…)
For borrowers, loans can act as a buffer against potential downside volatility and allow them to access liquidity without selling their NFTs.
On the other hand, lenders can earn high returns with an average APR of 57% on NFTfi. And if a borrower defaults on their loan, lenders get the NFT at a discounted rate - because the asset is automatically liquidated to them if the repayment by the borrower is not made on time.
Who is this lending/borrowing for?
Anyone! I can do it; you can do it.
Though the process is a little cumbersome at the moment:
as a lender you need to scroll through quite a lot of NFTs to find a borrower’s terms with which you agree (many do not specify terms, so you need to offer and then may have to wait / get no response);
as a borrower you need to upload your asset and wait for someone to fill your offer (sometimes you need to jump into Discord to negotiate with lenders to hammer out a deal)
So what is the danger?
Well, apparently there is no “new interest” in NFTs, which means it is current participants unlocking their liquidity from their assets to take more risks in the market which is driving the current increase in prices.
Cirrus, a prominent trader in the space, believes that (i) the amount of value being unlocked is too high at 60-80% of Loan-To-Value (if an asset is “worth” $100,000, they are being loaned $60-$80,000); and (ii) this unlocked capital is flowing back into the NFT market causing the recent surge in the market.
If this is true, and the market turns against these people, we will see:
cascading liquidations where the value of assets go below the value of the loans
so the borrowers do not bother to pay the lenders back
the lenders get stuck with the assets
then the lenders have to try to sell the asset to get their money back
but because everyone is trying to sell at the same time, the price takes a nose-dive downwards.
disaster.
What can you do?
Be aware of the leverage in the ecosystem.
Beyond that, I am a big advocate of trying things early (at a price point with which you are comfortable).
Here are the sites I am looking at and some example loans available right now.
a) NFTFI - Rektguy
This Rektguy is available to lend at 0.7ETH, with a return of 0.725 after 30 days (otherwise the asset is transferred to the lender.)
b) Arcade - Doodle
This Doodle does not have terms on the site, but is being offered as collateral in the discord for a loan of 6ETH for 7 days.
c) x2y2 - Murakami flower
A Murakami flower has been borrowed against for 0.9 ETH and the repayment will be 0.925 ETH in 5 days time (otherwise the asset is transferred to the lender.)
Hope that is an interesting journey into the world of NFT lending.
Be careful out there - and let me know which sites you like and we can compare notes!
This article would not be possible without the fantastic research by @wardaddycapital and @punk9059 who produced this fantastic report. My references lean heavily on their research and stats.
Memes of The Week
The Minister only this week!
Have a great day,
B
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Disclaimer: The content covered in this newsletter is not to be considered as investment advice. It is for informational and educational purposes only.
I hold some of the NFTs mentioned in these newsletters.