Institutional investors are increasingly entering the NFT space, particularly interested in providing original lending solutions.
Genesis Global Capital has completed one of its first purely NFT-backed loans for $6 million to Meta4 Capital, a Miami-based Web3 focused investment management firm. This loan is notable not just for its amount but for solely using nonfungible tokens (NFTs) as collateral instead of including broader liquid collateral. Meta4 operates as an NFT VC backed by Andreessen Horowitz, specializing in acquiring presumed rare and historically significant NFTs.
The proceeds of Genesis’ loan were used to finalize Meta4’s purchase of three NFTs part of Sotheby’s Metaverse “Natively Digital” October NFT auction: the $3.4 million record-setting gold Bored Ape Yacht Club #8817, the Rare Pepe PEPENOPOULOS for $3.6 million and an NFT from FingerprintDAO’s Mitchell F. Chan for $1.5 million. These acquisitions acted as bridge capital until Meta4 closed a Series B round on Dec. 1 for an undisclosed amount. All Meta4 investors received a proportional share of each item procured.
Brandon Buchanan, Meta4 Capital’s CEO and co-founder, told NFT-backed loans provide a better way to manage risk on the underlying asset, usually Ether (ETH).
“NFTs that would otherwise be in a mostly static state are now being put to work and we’re able to financially engineer returns in excess of the interest rate for our investors either by buying additional NFTs or earning yield through DeFi protocols.”
Buchanan also expressed his “thrill” to be partnering with a brokerage like Genesis, who provides “credence” and value to NFTs and NFT-backed lending.
Related: NFT-collateralized loan platform Arcade raises $15M in funding round
Genesis’ VP of Institutional Lending, Roshun Patel, affirmed that the company is accepting what are considered as “blue chip” NFTs for now.
“We’re looking at the most liquid, high individual value NFTs. Right now, only a few CryptoPunks and Bored Apes fit into that category, as well as select Pak and Nouns NFTs,” he said.
NFT as a novel form of collateral is being spearheaded by crypto native companies and protocols. The loan between Genesis and Meta4 Capital further advances the growth of financial products for institutional investors in the NFT asset class.