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This market is one South African company NFTfi targets and has raised a seed round of $5 million to continue pioneering the financialization of NFTs. Early-stage crypto fund 1kx led the round, with Ashton Kutcher’s Sound Ventures, Maven 11, Scalar Capital, Kleiner Perkins and others participating. 

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Once regarded as a fad (for some, it still is), NFTs, digital assets that depict real-world objects, are becoming increasingly popular within and outside the crypto world.

Founded by Stephen Young in February 2020, NFTfi acts as a marketplace where users can get a cryptocurrency loan on their NFTs and offer loans to borrowers against their NFTs. In other words, users can use their NFTs as collateral to get loans from other users on the decentralized and peer-to-peer system.

For example, if a user comes to the platform to borrow $10,000, different lenders would propose to the borrower offers with varying interest rates and payments terms, from which the borrower could then select. 

Meanwhile, the borrower will need to submit an NFT as part of the transaction. When the transaction is made, the NFT gets transferred into NFTfi’s smart contract (no one, including the NFTfi team, will have access to it) while the borrower receives the money. 

Once the loan gets paid with interest to the lender, the NFT returns to the borrower’s wallet. If the loan is not repaid during the allocated time, the lender receives the NFT.

NFTfi users apply a common practice in the traditional art world where banks, big galleries or auction houses offer loans to artists to determine if an NFT is worth a loan or not. 

Typically, in the traditional market, loans are roughly 50% of the artwork’s value. On NFTfi’s platform, lenders make evaluations and give borrowers up to 50% of their NFT value as the loan principal.

So, if an NFT is worth $20,000 at the point a borrower needs money, lenders are likely to offer not more than $10,000 as a loan. The interest rates, however, vary depending on the lender and assets. NTFfi takes a 5% cut of the interest earned on every loan by lenders, but it doesn’t make anything on a default. 

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