Not all high-value NFTs are the same!

The floor price of an NFT collection could be in the order of hundreds of thousands of dollars, but if there’s no demand - if none of those NFTs have changed hands in the past six months, and everyone has forgotten about it - is it really worth that much?

The story is different for CryptoPunks, and that’s one of the reasons I’m so fascinated with them. They’re not just valuable - they’re liquid, meaning that it’s very easy to find a buyer for a given Punk at any time, bull market or bear.

This is even more true for floor-priced Punks - there are market makers that make sure there’s plenty of choice, and capital, available for Punk shoppers and sellers, year-round, any time of day.

With the reliable liquidity of Punks, a new option opens: borrowing money against your Punk (or lending money to Punk owners).

There are a load of websites that will do this - it is very very important to ensure that before doing business with one of these sites that you check that the site you’re using is reputable and has favourable terms and that the smart contracts governing the loans have been thoroughly audited!

Two of the best sites to choose for borrowing against your Punk are NFTfi and Gondi. Both of these sites are fully decentralised; all borrowers (and lenders) come from the crypto community. It’s very different than going down to your bank and getting a loan!

To borrow against your Punk, you simply connect your wallet, set your desired terms and list your item. You can receive offers from specific lenders who are interested in your item and terms, and there are usually collection-level loan offers available for any Punk holder.

When you borrow against your Punk, it leaves your wallet and gets locked in a smart contract. You get WETH or USDC in return, and interest accrues on a pro-rata basis, meaning the earlier you pay your loan off, the cheaper it will be!

If you don’t pay the loan plus interest by the due date, the smart contract sends the Punk to the wallet of the lender. Also, generally, you pay the loan and interest off all at once. This isn’t like a car payment!

On some sites, loans can be refinanced or even fully renegotiated. As markets shift, an NFT put up as collateral for a loan might lose or gain value in an instant!

Punks, although their prices can be quite volatile, are highly desirable as collateral because they have a strong track record of being valuable over time, even in the frostiest bear market. So they are great for loaning!

Why would you want to loan against your Punk, particularly as it leaves your wallet during the terms of the loan?

Well, maybe you want to get a down payment together for a house. Or maybe you have some super hot tip about a memecoin presale and want to get in on it in size. Maybe you’re bootstrapping your business and you’ve got some confidence that a new tranche of money is coming in soon, so you can repay that loan.

Or, maybe, you’re ok with the risk of your Punk being liquidated, but you’re willing to enter into a loan so you have a chance of being able to hold onto it by repaying in time.

Whatever the reason, be careful to pay your loan back if you don’t want to lose your Punk! Generally on NFT lending sites, you can always pay your loan back early. If you have got the funds to do that and you are not using them for something else, then pay that loan back as soon as you can.

You can also be a lender on these sorts of websites, which is a good way to earn a bit of cash with capital you have lying around not doing anything. It’s also a good way to have a reasonable chance of getting a Punk, if the borrower defaults! But, you could wind up in an awkward position if the loan defaults and you’ve received a Punk, but the market price of that Punk is now lower than the amount you loaned to the borrower.

You can also loan with other NFTs as collateral, but that is a big challenge.

It’s a lot easier to be confident that a Punk will sell (and if there’s a price dip, that the price will recover) than to be sure that you’ll be able to resell an illiquid, quirky bit of expensive digital art with limited demand.

It’s amazing that while Punks are the definitive non-fungible token collection, and serve as digital identities and access to an unparalleled community, they are also extremely liquid and thus the next best thing to holding a fungible currency.