How Africans are Using NFTs as Collateral to Get Loans

The increasing interest in NFTs is rapidly widening the scope of innovations in this digital space. This digital asset has created a whole new way of generating revenue from buying and selling artworks. We starting to see a new application of the technology, where Africans can use NFTs as collateral to get loans. Tech startups on the continent are leading the charge in NFT financial loan solutions. Leveraging new ways of using NFTs as a means of collateral to get loans. This action implies solving more financial issues in the continent.

Usually, a large amount of capital is locked into NFTs that are not easily converted into cash. This creates a problem for people searching for ways to unlock methods of making money with their NFTs without selling it. With this in mind, the South African startup NFTfi has secured a market for itself.

The platform serves as a marketplace where users can get a cryptocurrency loan with the NFTs from other users and vice versa. Users can make use of their NFTs as collateral to get loans from other users on the decentralised and peer-to-peer system.

More about the NFTfi

The crypto platform was founded by Stephen Young in February 2020, to solve the financial problem of getting a loan. Now Africans have a secured platform of using NFTs as collateral to get loans. Recently, the company raised a $5 million seed round to continue pioneering the monetization of NFTs. Early-stage crypto fund 1kx led the round, with Ashton Kutcher’s Sound Ventures, Maven 11, Scalar Capital, Kleiner Perkins and others taking part.

If an NFT is worth $20,000 at the time a borrower needs money, lenders are unlikely to grant more than $10,000 as a loan. The interest rates differ based on the lender and the assets. NTFfi takes a 5% share of all interest generated by lenders on each loan, but it makes no money if the loan defaults.

However, risk is inevitable for both the borrower and the lender. Borrowers have a certain amount of time to repay their loans before lenders can collect their NFTs. And because of how NFTs are volatile due to the public demand, lenders may end up taking NFTs that are low in value. 

“That’s why lenders want to have some room between the price of the asset and how much they lend”, Young said about the dynamics in pricing between lenders and borrowers on NTFfi. 

“This is because in the case where somebody defaults, they need to be able to sell it for less than market value, and the price might have dropped in between. So that’s why they need such a big buffer between the loan value and the value of the actual asset”.

However, Young asserts in terms of loan volume, NFTfi has grown at an annual rate of 80% month over month, with a total value of more than $26.5 million. According to the company, lenders have earned more than $500,000 in interest.

“Our main focus is that we want to do for NFTs what DeFi did for cryptocurrencies. As soon as you brought DeFi into cryptocurrencies, you also had this explosion of activity and liquidity in the market. And really, we want to act as that catalyst for the NFT market, unlocking some of the value in these NF Ts so they can then be ploughed back into the NFT community and market to help develop the space further”, Young said. 

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