My Real Estate Was Turned into an NFT. I Used that NFT as Collateral for a Loan.

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arizonaOoops, I did it again. I bought an NFT that grants me ownership of real land in Arizona in the same manner that I previously bought land in California. But this time I went a step further, I used it as collateral for a loan.

Thanks to a proptech company called Fabrica, the owner of a plot of undeveloped land in rural Sun Valley, AZ transferred the rights to a trust for which control is governed by whomever owns the corresponding NFT. Long story short I bought that NFT. The difference between this NFT and say some digital collectible flavor of the month is that the land has some actual value in the real world. It’s not dependent on the blockchain for its worth and I can go to Sun Valley and build something there if I wanted. But with ownership governed by the NFT, I can also do something that might be a little bit more difficult otherwise for this remote and somewhat illiquid property, and that’s access liquidity in a highly efficient marketplace.

Specifically, I offered this property up as collateral for a loan on NFTfi, a peer-to-peer NFT loan marketplace at a very modest LTV of 32%. My offer was filled and I was able to access the funds with a single click of a button. If I default on the loan, the NFTfi smart contract will transfer the NFT to the lender and with that the lender would become the legitimate owner of the property in Sun Valley. The stakes in this case are real.

If you’re thinking about what kind of person would ever want to make this kind of loan, consider that more than $400 million worth of NFT loans have already been conducted on NFTfi since inception. The most commonly used collateral is digital artwork like cryptopunks and Bored Ape Yacht Club, which collectively represent $164 million of that total volume alone. When borrowers use this digital artwork as collateral the lender may end up stuck with an NFT with no physical connection to the real world. For an entire niche audience of lenders, this doesn’t bother them. However, as someone with a more apprehensive view toward risk in lending, the introduction of real physical collateral, actual property in the United States no less, is a game changer.

I am not the first person to ever engage in this type of transaction. According to Fabrica, the first property-backed NFT loan was transacted in 2021. However, if I might be afforded any claim to fame it is for conducting the first ever domain name loan over Ethereum.

Last modified: February 25, 2024
Sean Murray

Category: Real Estate

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