Paper 67: How to make money lending against NFTs
Airdrop farming NFT Lending protocols - a new era?
GM - this is the BCheque Papers, edition #67.
Welcome to the new subscribers this week - we are at 1,800 subscribers now!
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/Crypto World - The US vs Crypto
Notable Sales - Sam Spratt; XCOPY; CryptoPunks
NFT Lending - How to make money lending against NFTs
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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.
Have a great day,
B
This Week In NFT/Crypto World - The US vs Crypto
Remember when FTX was going to buy Voyager to save all of Voyager’s customers and then it went up in smoke as FTX collapsed?
Then Binance came in to save the day?
Well, not anymore.
Binance termination of purchase agreement details
Binance announced that they will not proceed in the “hostile and uncertain regulatory climate in the United States.”
We have been talking about this in this newsletter for months.
It is impossible to do crypto-business in the US right now - which is terrible for its future (because the future won’t stop and will just get built elsewhere).
More on this….right now.
Coinbase goes after SEC
Almost a year ago Coinbase asked the SEC to provide some regulatory clarity on certain specific questions so that they could comply properly with US law.
They have yet to receive a response.
As such they have filed an action against the SEC to force them to reply.
This is against the backdrop of Coinbase moving some of its operations offshore last week - again underlining the lack of faith in the US establishment to regulate appropriately as things stand.
AI Art Midjourney App hits 14M in Discord
On a much more promising note, the AI Art tool, Midjourney has gone past 14 million users in their discord.
It’s amazing that so many people are experimenting with this art and producing unbelievable results.
I recommend this thread of AI outputs by Nick St. Pierre.
What is even more crazy?
They have no more than 20 employees!
AI may very well allow brilliant tools to scale in a way never seen before.
Moonbirds announces community council
One of the biggest NFT Profile Picture Projects/Communities, Moonbirds, has launched a community council programme after a fall in price from more than $100,000 to $5,000 (95% decline).
I wrote almost a year ago here why I sold my Moonbird.
Moonbirds community council details
Can this announcement turn things around?
Well I think it is an essential start.
Something which has become very obvious to me:
(i) community members want to be uplifted and grow with the company/project;
(ii) if a company is stingy with the RT button on Twitter they are simply not going to make it.
People want to grow: help them do that and they will be loyal.
NFT projects make huge moves on Instagram
Web 3 native IP has continued to grow from strength to strength on Instagram and Tik Tok.
The Pudgy Penguins, Beanz, and Chimpers teams have been putting up huge numbers on those platforms.
We have touched on it before, but it’s worth mentioning again because these teams are positioning themselves as heads and shoulders above the other teams at brand building.
What will they do with their audience?
I think at this stage it doesn’t matter.
The numbers give them optionality and a chance to build real fans.
The exciting opportunities will come after.
NFT Lending Airdrop Farming
First we had airdrop farming of financial protocols on the blockchain.
Then we had airdrop farming of NFT trading protocols (still ongoing).
Now we have the chance to get rich by airdrop farming NFT lending protocols - what on earth could go wrong?!?
NFTFi - one of the premier NFT lending protocols - this week announced their rewards program for lenders and borrowers on their protocol.
This is the subject of this week’s deep dive, so keep reading to find out more.
Notable Sales - Sam Spratt; XCOPY; CryptoPunks
The Gravity of Midas sold from Cozomo de Medici to OSF for 77.69Ξ ($151,720 USD)
An XCOPY 1/1 (Loading New Conflict Redux 6) just sold at Sotheby’s for 130.434 ETH ($246,000)
Hoodie CryptoPunk with attitude sold 199.99 ETH ($373,479)
This M4A4 in CS:GO just sold for $215,000
NFT Lending - How to make money lending against NFTs
NFTs have become financialized in a way that means you can unlock the value in your NFTs via a loan.
The way it works:
agree terms of a loan;
put your NFT into the smart contract;
receive the funds
if you don’t pay back by the agreed date, the NFT will be released to the person who provided the loan (who can then liquidate the NFT if they wish)
Why am I interested in this now?
i) I think the technology of using smart contracts to unlock liquidity in digital assets (and maybe one day IRL assets?) is huge so I want to experiment with the technology
ii) Trading NFTs themselves in the market right now is a deathwish - I don’t think we currently have enough demand to support this many collections - so this presents an alternative way to get exposure to the NFT market without holding the assets directly or paying huge amounts upfront.
iii) NFT Lending platforms appear to be ready to incentivise borrowing and lending.
How do these incentives work?
Well, only NFTFi have gone public with their rewards program so far (though others are rumoured to be shipping similar schemes.)
In summary, NFTFi have said this:
“Since we invented NFT lending with the first trustless NFT backed loan in June 2020, NFTfi has grown from zero to over $400,000,000 in loan volume.”
“Our ultimate goal is to transform NFTfi into a user-owned and operated protocol.”
“Eligible borrowers and lenders can now earn exclusive, non-transferable reward points.”
“To secure your reserved OG Points, start an eligible loan as a borrower or lender before May 15th, or they expire.”
“This is not an offer of tokens or securities. Reward points are at present not redeemable. They are planned to be redeemable for blockchain tokens at a later point in time for eligible users.”
What does this mean?
We get points (not worth money) for borrowing / lending on the platform.
These points are planned to be redeemable for blockchain tokens (worth money) at a later date.
What are the risks?
This is a really good summary from the NFTFi discord of one of the risks.
You should not assume that you will get paid back - you may very well be left holding the asset, so you should probably make sure the amount you lend is a price you are happy to pay to own the asset.
In addition, and as always, there is smart contract risk. Protocols get hacked. So be cautious.
So what can I do?
I am going to try some lending at a value which I am comfortable knowing the risks discussed (and knowing there may well be risks for which I have not accounted).
I will do this not just on NFTFi, but on other lending protocols too.
Time to experiment and explore for me.
Let me know what you decide to do or if you have any questions.
This stuff is not straightforward and the protocols are very new - so interested to hear how people approach these protocols.
Have a great day,
B
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