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People Are Taking Out Loans Against Their NFTs -- and Defaulting (vice.com) 52

Posted by msmash from the closer-look dept.
In the ongoing speedrun to turn everything into a non-fungible token, savvy traders and entrepreneurs have recently taken a few steps to squeeze more investment opportunities out of their JPEGs. From a report: Case in point: it's now a thing to take out a loan and offer up an NFT as collateral. Take NFTFi, a peer-to-peer lending platform described by Coindesk as a "pawn shop for NFTs." The core premise is that you can mortgage your NFT in exchange for other crypto that can be sold for cash while keeping your NFT safe -- if you can repay the loan. NFTFi told Coindesk it had done over $12 million in volume since its launch in June 2020, with an average loan size of $26,000 and as high as $200,000. As you might expect, crypto-loans backed by JPEGs on the blockchain come with some risk for both parties. Default rates are just shy of 20 percent, the platform told Coindesk. Sometimes, that comes with some pain. The Block recently reported on a trader who borrowed 3.5 ETH (around $12,000) on NFTFi, offering an NFT that had last sold for 3.25 ETH. Over the next three months, the value of NFTs from the same collection skyrocketed to around $300,000 on the low end. On October 10, the loan period ended, the borrower failed to repay the loan, and the NFT -- now worth many times more than the original loan -- was taken.
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People Are Taking Out Loans Against Their NFTs -- and Defaulting More

People Are Taking Out Loans Against Their NFTs -- and Defaulting

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  • What the fuck.. (Score:1)

    by Anonymous Coward

    This sounds like a scam... but... I want in.

    Where do I convince mentally retarded investors to pay $12k for a jpeg?

    • This sounds like a scam... but... I want in.

      Where do I convince mentally retarded investors to pay $12k for a jpeg?

      I was thinking the same thing....

      I need to put aside some time this weekend to study up on this thing and figure how to get into it to make a little $$.

      It sounds almost a little too easy...?

  • (I don't Get It )^3 (Score:5, Insightful)

    by cellocgw ( 617879 ) <cellocgw&gmail,com> on Friday October 15, 2021 @11:52AM (#61895285) Journal

    So many levels of WTFery with nonexistent fake reality here.

    Then again, what idiot, with foreclosure staring them in the face, doesn't sell his NFT for the current price and pay off the loan?

    At least in my state, not only can you sell your house (duh) and use the proceeds to pay off the mortage, but if the bank forecloses on your house and sells it for more than the amount due, IIRC they have to pay you the balance. I'll let some real estate lawyer correct me if that's no longer true

    • Elementary, the same party was on both sides of the transaction. The entire NFT market is pump and dump.

    • Re:(I don't Get It )^3 (Score:5, Insightful)

      by tap ( 18562 ) on Friday October 15, 2021 @12:24PM (#61895397) Homepage

      Then again, what idiot, with foreclosure staring them in the face, doesn't sell his NFT for the current price and pay off the loan?

      It never says the sold they NFT for $300,000 when the borrower defaulted. Just that they took it, and want people to believe if the sold it they could get $300,000, but haven't actually sold it yet. Would you like to buy it? Great deal, in a month they guarantee that they will tell you it's worth $3mil.

      It's like diamonds at a jewelry store. Go to buy and they assure you these diamonds are worth large sums of money because clarity this and color that. Go to sell, and suddenly they don't seem to be worth anything.

      The idiot didn't sell the NFT because NFTs only sell to people in on the scam or to Greater Fools, and fools so great they will pay more than $13,500 for a URL that links to a jpg are hard to come by.

      • The retail jewelry store isn't lying. It's just that no one will buy diamonds regularly without complete documentation, from the original rough stone in a mine to the cut stone you want to sell, including all of the stones cut from rough - the names and addresses of each buyer/seller (and they must be reputable), the name/address of the cutter, etc. If you buy a $5 million tennis bracelet from Cartier, they will have that information on file and provide it to you on request. If it's a $5,000 stone from a ma

        • Re: (Score:2)

          by torkus ( 1133985 )

          The retail jewelry store isn't lying. It's just that no one will buy diamonds regularly without complete documentation, from the original rough stone in a mine to the cut stone you want to sell, including all of the stones cut from rough - the names and addresses of each buyer/seller (and they must be reputable), the name/address of the cutter, etc. If you buy a $5 million tennis bracelet from Cartier, they will have that information on file and provide it to you on request. If it's a $5,000 stone from a mall jewelery store, they probably also have that information in their central office - but little incentive to provide it to you.

          No, you're incorrect. I can't even imagine where you got that train of logic from, but you're entirely out of touch with the jewelry/diamond industry.

          If you have a $5mm diamond, it's going to be well documented regardless simply because of the value. if you have a $10k diamond from Acme Jewelers it's also very, very likely GIA certified including history and that information absolutely is available to you. If you then try to resell that same stone, same documentation, same everything you'll not get anywh

    • It is likely that most people involved here are in on the scam, but at some point the buck stops and a few are fleeced. Those people might genuinely believe in the NFT market but I suspect they don't really know much beyond the news articles that claim it is the next big thing.

      But if it is true that most of the people involved truly buy into NFTs as a long term investment, we may reach the point where normal people will no longer "get" this spider drawing goof [27bslash6.com]. To them it will be perfectly reasonable to

    • Re: (Score:3)

      by DarkOx ( 621550 )

      I don't think is true. If the bank forecloses on you - that's it, the property reverts to them. Whatever they may do with it later you have no claim on.

      What I think you are referring to is a 'forced sale' for some types of loans in some states and I don't know that I have seen this in residential real estate but in commercial, they bank can force you to list a property for sale if you are in default. This is often better for you and the bank because you get the opportunity to keep the equity you do have,

      • Well if they gave you a 1 million loan on a nft you put up as collateral (and paid say 100k) that is crazy. But if you default, they keep your nft. But if they only get 10k for it, they are still going to come looking for the rest from you. It's the same idea if a car gets repossessed.

      • Not sure where you are located, but in my state banks can only force an auction on the courthouse steps. And they must bid the amount of their judgement.

        If someone else bids more they get the property and the payment is split with the bank getting the judgement while the owner gets the remainder after all other lienholders are paid.

        If the property is worth more than the liens the owner can get somethingout of it.

        Pawnshops are different... It is all in the agreement, but I doubt you can get the property bac

    • Everything so bizarre here that it makes Eve Online sales of in-game items seem stodgy and traditional.

    • Pawn shops lend to those that cant get a mortgage. At pawn shops if you dont pay in time the entire item is lost not just the value of the loan
  • Default rates are just shy of 20 percent,

    Default rates on loans at banks are generally 1 - 2% [stlouisfed.org] because they vet people's ability to repay the loan. If people are defaulting at a 20% rate on this, that does not bode well.

    • Re: (Score:3)

      by N1AK ( 864906 )
      Banks care about high default rates because they either lose out (if there's no collateral), have expensive recovery processes, or have to sell off physical assets. If you borrow against Crypto (and less so NFT) then normally the lender actually has more of your assets than you borrow of theirs; so they really don't care if you default because they don't lose out anyway.

  • I missed the part in the article where we're supposed to care.

  • ..in New York I'll sell you cheap.

    • Re: (Score:3)

      by tap ( 18562 )

      Case in point: it's now a thing to take out a loan and offer up the Brooklyn Bridge as collateral. Take NFTFi, a peer-to-peer lending platform described by Coindesk as a "pawn shop for Brooklyn Bridges." The core premise is that you can mortgage the Brooklyn Bridge in exchange for other bridges that can be sold for cash while keeping the Brookly Bridge safe -- if you can repay the loan. NFTFi told Coindesk it had done over $12 million in volume since its launch in June 2020, with an average loan size of $26,000 and as high as $200,000. As you might expect, crypto-loans backed by the Brooklyn Bridge come with some risk for both parties. Default rates are just shy of 20 percent, the platform told Coindesk. Sometimes, that comes with some pain. The Block recently reported on a trader who borrowed 3.5 ETH (around $12,000) on NFTFi, offering the Brooklyn Bridge, which had last sold for 3.25 ETH. Over the next three months, the value of other East River bridges skyrocketed to around $300,000 on the low end. On October 10, the loan period ended, the borrower failed to repay the loan, and the Brooklyn Bridge -- now worth many times more than the original loan -- was taken.

    • I'll trade you a few NFTs for it.

  • NFTs - The New Religion of Greed (Score:1)

    by Anonymous Coward

    Many people sit back and say "Well yeah, everyone believes old religious stories, because it happened thousands of years ago...no way you could get away with making up shit like that in the modern era."

    And Xenu said "Hold my beer and watch this tax-free move." And Tom Cruise became a demigod.

    NFTs are the Scientology of the money-laundering art world. Pulling even crazier shit to make you believe it's legit.

    And Hunter Biden became a demigod.

    At the rate we're trying to destroy the concept of both currency

  • Buy buy buy!

    (but not with your own money)

  • and if the NFT goes down does the loan shark beat it out of you?

  • Tulips (Score:3)

    by RobinH ( 124750 ) on Friday October 15, 2021 @12:48PM (#61895517) Homepage
    Can I take a loan out and use this tulip bulb as a collateral? Sheesh. The entertaining thing about the human race is that it keeps producing a steady stream of new people who don't know anything, and killing off the ones who've learned those lessons the hard way. We're heading into a period of higher than usual inflation, and what's a good thing to invest in during periods of high inflation? Three things: (1) your skills (2) the tools of your trade (3) non-perishable things that you definitely will use in the future. Banks also do well in periods of moderate inflation, if you really want to buy stocks. But really, buying stock in any company likely to turn a profit in the future is a far better investment than any crypto or NFT that literally does nothing except occupy space on a really long number line.

  • ... jpeg or never happened.

  • Who's Allowing NFTs as Collateral? (Score:3)

    by dcw3 ( 649211 ) on Friday October 15, 2021 @01:08PM (#61895621) Journal

    What financial institution would accept an NFT as collateral? Serves 'em right if it gets defaulted.

    • What financial institution would accept an NFT as collateral?

      They don't. This is all self-contained within the cryptocurrency play world. Real financial institutions aren't doing this.

      • Re: (Score:2)

        by dcw3 ( 649211 )

        What financial institution would accept an NFT as collateral?

        They don't. This is all self-contained within the cryptocurrency play world. Real financial institutions aren't doing this.

        Oh, in that case, where do I sign up for a loan?

      • Re: (Score:1)

        by ebvwfbw ( 864834 )

        What financial institution would accept an NFT as collateral?

        They don't. This is all self-contained within the cryptocurrency play world. Real financial institutions aren't doing this.

        Ponzi was born in the wrong time. He'd love this!

  • I wouldn't normally advocate financial regulation, mostly because I have so little trust in the reasons behind it - seems for the most part, a means of keeping "the little guy" out of the club.

    But in this case, we have reached insane levels - and some people do need to be protected from themselves, lest something like this, drags all of us down.

    The more people try and convince me that NFTs of digital "works" are valid, the more I question the motive.
    Anything digital can be replicated, as in directly copied,

    • Re: (Score:2)

      by suutar ( 1860506 )

      The best description I read of NFTs is "you're buying a receipt. There's only one receipt for this thing, and you have it, so you and only you can prove that you own the thing. Yay!"

      • Re: (Score:3)

        by N1AK ( 864906 )
        Some Polynesian tribes used carved stone rings as a form of currency for trade thousands of years ago. The rings had no function except as ways of exchanging value. Some rings would be lost in the Ocean yet ownership of the ring continued to be traded. It's easy to mock people for behaving a certain way, but if that way of behaving has worked for thousands of years maybe we need to be careful about assuming it is stupid too quickly.

        • Re: (Score:2)

          by suutar ( 1860506 )

          I don't think most people are mocking NFT folks for using blockchain; they're mocking NFT for (typically) being used to sell "the only copy" of something that's intrinsically trivial to duplicate (a hunk of digital data).

  • Has anyone made an NFT out of hello.jpg? And if so, what is the asking price?

  • Too many idiots throwing away money on shit that isn't worth a damn.

    Can't wait for the crash. Getting my popcorn ready.

    • Re: (Score:1)

      by ebvwfbw ( 864834 )

      The mortgage crash was because of liar loans that they made the banks take based on fake red lining studies. Bill Clinton era. Janet Reno threatened to put bankers in jail if they didn't make those loans. They had a 10 year balloon payment which brings us to 2008.

      At least in those cases there was an actual house. NFT is nothing. It's crap. A cryptographic entry in someone's journal. Big deal.

  • -- because it's the only explanation I can think of to explain the utter nonsensical craziness that are NFTs. Clearly the QA department dropped the ball somewhere and missed this bug -- errrr 'feature' in the current release. I'd actually prefer to go back to release 1986 or so -- the music sure as hell was better.

  • Win stupid prizes.

  • Taking out a loan on a value-less item and then defaulting sounds a lot like money laundering to me, but what do I know?

    https://youtu.be/ZPtjyqgZAUk [youtu.be]

  • ... and the NFT -- now worth many times more than the original loan -- was taken.

    And nothing of any real value was lost -- "many times" $0 is still $0.

  • Normally, when a bank liquidates loan collateral to satisfy the loan, any amount collected beyond that must be returned to the owner of the collateral. The bank doesn't become the owner of the collateral and enjoy the appreciation on top of having the loan principal satisfied.

  • Pawn exchanges and defaulting on chains of loans secured on BS property have been a mainstay of money laundering for centuries. This is nothing new.
  • Thieves generating artificial scarcity and selling it to fools
    fools/ thieves persuading fools to give them credit based on artificially scarce items
    fools/ thieves defaulting on said credit
    what is next, the fools/thieves who extended this credit persuading the US "Leadership" that they are too big to fail and asking for a bailout.

    Shouldn't this be sounding familiar by now?

  • If this trend is true, who cares, a fool and his money are soon parted.

    • Re: (Score:1)

      by ebvwfbw ( 864834 )

      If this trend is true, who cares, a fool and his money are soon parted.

      Businessmen are starting to look into this. Like Kevin O'Leary of sharktank. Tried to tell him. He's being sold a bill of goods.

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