Stephen Young & Storm: NFTFi – P2P NFT Lending Protocol: From PFPs & Art to RWA #508

Transcript

welcome to epicenter the show which talks about Technologies projects and people driving decentralization and the blockchain revolution I'm Brian Fabian Crane and today I'm speaking of Stephen young and storm Stephen is the CEO and co-founder of nifty-fi and storm is head of Business Development nitify is kind of the first nft lending platform it's one of the leading and earliest projects in the nft finance space So today we're going to talk about nfts and NFC finance and nifty-fi and you know sort of like where all those things are going a bit excited about this especially because I'm I'm not very deep in nft space so I'm excited to learn more from D2 yeah

so thanks so much for joining us thanks for having us Brian excited to to fill you and your readers and your listeners in on some of the happenings in nfts even though we're kind of in the depths of a bear Market uh we're all still pretty bullish on this side absolutely thanks for having his brand very excited to chat cool maybe you can just start off uh if you guys could both introduce yourselves and share a bit like how did you uh you know how is your sort of journey into crypto bin and how has it led to a Nifty five yeah sure so um so my name's Stephen I've been in Tech basically since I was a teenager already learned to program my first job

was writing a game in C plus plus uh when I was still in high school so radio has been my career from the start and I I live in South Africa I spent two years just as I finished high school living in the UK and then around 2016 did a calculation and figured out that I was earning Less in dollars uh 15 years into my career than I was in my first job living in the UK and I was basically because the South African Rands purchasing power just fallen off a cliff and so I was still in South Africa enjoyed the lifestyle all my friends were here but I was looking for a way to kind of escape the the financial system here and really that's how I kind of

came across crypto and then late 2016 bought my first crypto you know basically using all instead of paying in tomorrow times annuity I was buying crypto which is probably not the most risk uh like management style for retirement but you really you know like given how badly the South African rand was doing you really was kind of my only option to to Really exit the system here so that was 2016 went full time into crypto like 2018 uh and then started Nifty five end of uh 2019 so basically spent the first

two lockdowns in South Africa writing the first version of notify and launched in June 2020 and then my interest in nfts really came from the way that I actually learned to program as a kid was by doing essentially generative Arts using this program called logo so it's a less derivative that's essentially used to teach children how to program and you do that by drawing pictures on the screen with this little turtle so you know so I was into generative Arts really as soon as I got into uh programming so when nfts came around you know combining Arts uh programming and then I spend most of my career working

for National for financial services companies so you know you know adding in Finance on top of that and you kind of basically have niftophy awesome and uh thanks again so my name is storm so my background I'm originally from Ireland and um so essentially I kicked off my career in the investment banking space in a specialty called project Finance which is essentially infrastructure renewable energy Finance did that for for quite some time around five years before I really fell down the kind of crypto Rabbit Hole when I discovered well I suppose actually I've been in crypto since 2014 I doubled in

it as a student but at that point in time I was more interested in buying beers than kind of adding to my my stack of crypto so I discovered at that time like really fell in love with it kind of followed it very closely over the course of kind of five years and at which point I kind of really fell down the rabbit hole as I said in 2021 which when I discovered nfts so I kind of started in that space collecting some uh trading some flipping some the usual kind of uh classical nft degenerate story and but I did also kind of uh begin to discover nft Finance at that point in time as well it was quite interesting that not only

could you buy and sell assets but also you could be into kind of as part of your trading strategy take loans out against them as well so I started there as kind of a manual lender and the nft finance space but then uh kind of since partnered up with the developer uh business partner developer and we started doing a lot of automated or programmatic Landing in the nft space as well so really kind of uh got very deeply involved after a Time came to know all of the essentially all of the major lenders in the space and quite some of the borrowers in the space as well and after you've been in the space for for quite a while you you like it is a very very deep Rabbit Hole from which you really can't emerge and probably as

we as we continue on the conversation later today like there's a lot of very interesting aspects of the market that are creeping up that I think are really going to be exciting over the next couple of years cool thanks so much for these intros uh so you mentioned already a little you both kind of touched on it a bit right and so this is basically like the nft market and can you just uh let us know like what is the state of the NFC market today and maybe also just roll a little bit Yeah the main things that are going on yeah so maybe what I can do is give like a very high level kind of overview and then store maybe you can dive into a couple of things that uh are actually

looking quite interesting going forward so so I think there's broadly to kind of groups of nfts that are are active in the market and I would can classify them really as the top end of the art markets and collectibles uh and then everything else really uh and in the top end of the Art Market the reason I have put that differently is because I think that's really the sector of the market that has actually found product Market fit you know so these art pieces are they're finished you know there's no external dependencies a lot of them are fully on chain you're not relying on a team or a project to go build something out that's

not going to drive value to these assets you know they're just pieces of art they're finished uh you know you can just everything that you need to know to evaluate them is almost in the past right you know the artist you know the history and the work is either good or it's not you're not waiting for any future things then there's this whole second set of the market which is more come company like or utility you know so I would say a profile picture projects pfps would fit into there you know a lot of the new areas around ticketing and music and royalties and all these kinds of things they're very interesting and you know a lot of potential there I think but much more risky because they still have to prove product Market fit and

that's you're seeing it actually in the prices if you look at the like an index that's mainly made up of top end art they've pretty much buttoned and not really gone down any further whereas if you look at pfp projects and and all of everything in that category they still have quite a lot of headwinds ahead of them so yeah so that's like broadly how I would put those two I think the other thing to also just bear in mind is that you know nfts really are a luxury good and the same as any luxury goods they have the wealth effect really takes an impact so if you if you look at the prices for second-hand luxury watches like Rolexes and Patek Philippe and you overlay that

graph onto the prices for board apiat Club it's almost a mirror of each other I mean the board apps are slightly more volatile but you know the peak was in March April they slowly been going down since then starting to bottom right now some signs that maybe in the next few months they start turning around and it's really these are illiquid assets that are luxury purchases and like every other luxury asset in that class when people feel rich they start spending more money when the markets turn around these illiquid assets are the last thing you sell so they tend to hold their prices for a little bit longer and kind of drop after the address of the markets actually dropped yeah that's sweet that's a great points thanks Steven

um and I suppose the way that I would frame it in some ways is that the nft market to date has been a great placeholder for what is to come probably over the next call at one one to three years as an example particularly when you look at the profile picture markets which really has actually just been the Lion's Share of the market to date it's kind of been a good experiment in nfts as like a base technological primitive and how you can kind of Stack that with other kind of composable um technology structures on but sit on ethereum like there's been kind of some good interesting highlights particularly around the areas of as alongside the

ones that you mentioned Stephen Community Building membership just general interaction with fans it's a good way for companies to release products so it's a completely new way for them to release products which uh you know never discount the concept of companies trying to sell people at large more products um it's a it's you know it's been an interesting way for artists in particular to express themselves that's been a definite bright spot like the emergence of a lot of creativity on Shane whereas you know artists or creatives generally might not have had that out like before and then one important area definitely worth mentioning we're starting seal of green shoots in the area of real world assets so this these are physical or financial

assets which are starting to make their way on chain um and then just generally as I mentioned kind of like the concept of digital asset composability so which is a really really important one where essentially you kind of ask the question where how do pure digital objects or alternatively digital objects which represent physical objects how do they stack you know in the G5 money logo composable worlds that we live in on on ethereum and I think like you know over the coming years the this composability of nfts with other Primitives really starts to form like quite a significant Bedrock you know an economic Bedrock on on ethereum which will be quite interesting

I'm curious if you can dive in a little bit into yeah the sort of real world asset bracket of the market what has the most traction there like what kind of use cases yeah so I think um there's sections of the market that are actually very similar to the Collectibles that I've already found some Traction in in nfts so and that you know watches sneakers uh uh paintings basketball playing cards those kind of things um so the reason I think those will probably take off first is it's relatively easy to store those things in a warehouse and tokenize them they are

fairly unregulated so you're not having to to jump through a lot of regulatory Hoops they can act very similar to the actual nfts there's a huge overlap in the holder base so a lot of the people who started collecting nfts were just collectors at heart so they already had a stamp collection or Magic the Gathering cards under their bed or multiple watches that they're collecting so so there's there's just this big overlap between the actual borrower base or the actual collector base there that I think connects in quite easily and then I think the the other reason is now that you're starting to have some of

these nft financialization um services that are kind of cropping up around nfts tokenizing that asset all of a sudden means you can do things with it that's much more difficult to do if you don't actually take an app tokenizer to bring it on chain so get access to 24 7 markets you know open CE blur all those kind of things you get Landing markets you get fractionalization you know there's a whole bunch of this infrastructure that has been built over the last two years that all of a sudden actually make it worthwhile to bring those assets on chain so in this example uh let's say you mentioned like watches sneakers and stuff so this would you would have an nft and that can be

redeemed and for the actual physical object something like that that's correct yeah so interfacial object is stored with some custodian and anyone can go there and basically give the nft and they get uh yes exactly and that's kind of where we're seeing a lot of the traction at the moment so there's quite a few people like 4k.com is basically building a distributed network of warehouses where you you send in the physical assets they bring it on take some photos maybe do a 3D scan uh mention the nft that represents the assets and then um basically that nft get the the actual asset stays in the warehouse and that nft can start trading uh you know go through open C go into a loan and then at some point if if the owner of that

nft was to redeem that asset they can burn that nft and then return the the warehouse sent it back to that person so in theory which has got an interesting concept you could become the world's largest watch sneaker trading cards dealer without ever taking physical possession of an item which I think will be quite interesting and similarly you can become you know a major lender in the space without ever having having to take custody of an asset cool well let's talk about nft Finance then so you know you mentioned a bunch of the different types of assets and of course a lot of listeners will be familiar I think most people is this

will be you know reasonably familiar with D5 and you know no kind of The Primitives on there but what does the nft finance space look like and what are the most important you know kind of like Primitives and Innovations there yeah sure so I think there's two main distinctions right that you want to make when you're considering the nft landing market and that is whether the protocol is a peer-to-peer model or whether it's a peer-to-pooh model I think that's the two kind of buckets into which most nft platforms fall at the moment and then of course you have um structures which sit on top of them and leverage them but for the most part the building blocks of the industry are

peer-to-peer period models the way that the I should mention nft file in this case is a peer-to-peer platform um it's a plaque or it's a structure that we really back um it's worked very well for us since the start has a really a lot of um excellent aspects about it that'll make it very borrower friendly um so just to maybe dive into what that actually looks like so peer-to-peer platform as you can imagine is comprised of two sides on one part you have borrowers which come onto the platform on the other side you have lenders which come onto the platform the borrowers typically own nfts or various different assets which they list on the platform in this case

it's a gas-free transactions are listed on nft5 and then blinders come onto the platform and they compete essentially compete for the assets which they would like to land against um and so what that typically looks like lender set bids structured around loans of value of assets around the different apos which they would like to receive in return for the loan um and that's kind of the typical approach the borrower will then have a look through the various different terms that have been made available to them from the various lenders and they'll select the terms that work best for them you know some some lenders have a shorter time preference where they only want a loan for let's call it three or so sorry some some borrowers have a shorter time preference where they only

need capital for three or seven days or on the other end of the market we're actually seeing quite a lot of loans for 365 days so full full years so with that being said at the at the end of the term of the loan what the borrower does they simply uh it's a fixed fixed term loan APR is fixed at the start of the loan so at the end of the duration of the loan they know exactly what they have to repay and the date on which they were paid um at that point they repay the loan um which is initially placed in an escrow smart contract the assets obviously the nfts places an escrow smart contract it's then released from the escrow smart contract back to the borrower at the end of the duration

of the repayment of the loan and the lender receives back their principal plus the interest which they offered so it's in summary of the the peer-to-peer structure and then so let's do jump in there if the lender that the borrower doesn't repay on time then the lender can foreclose the asset the borrower keeps the the loan principle and the lender will receive the actual entity yeah so that's basically the risk that uh the lender has to sort of calculate with that okay if these nft drops in value then all of a sudden it can be the case that doesn't make economic sense anymore for the borrower to actually repay the loan and then they would

it will sort of default even if they let's say normally could you know maybe they have the money and they could pay right but like correct correct and and many many borrowers actually use and the protocol as part of a hedging strategy as well so essentially to protect their downside in the instance that the value of their nfts does Fall and on the other side you know many of the lenders are very sophisticated individuals former traditional Finance individuals and just generally very deep nft Finance people so they they understand the risks for the most part of of uh of kind of the the structures there so um yeah it's it's very interesting space

um and then perhaps moving on now to the peer-to-pooh model which is a little bit different it probably more closely resembles what you're used to seeing with Ave or um kind of balancer or one of these types of of pool models um where essentially on one part you have the borrowers and again you have the lenders the lender Place into one generalized pool an amount of ethereum or usdc as an example and then the borrowers can retrieve ethereum or usdc from those Pools by depositing their assets into the into the pools typically those terms are preset by the

pool itself or by the protocol itself for example if you add a board a part you know a floor process of 30 eats on another 50 amount of value um specified on the pool you can withdraw 15 eats from the pool typically with that approach there is no duration set so you can borrow indefinitely in theory however you do need to be conscious of essentially your health or LTV ratios in those pools so if they fall below a certain level then there is the risk that you can have your assets liquidated and typically as a result the liquidated assets are placed into a an automated auction mechanism where they're listed

and people can bid on them and that they're liquidated that way whereas in the period peer-to-peer model it's the individual lenders themselves which carry out the liquidations and just uh one thing that occurs to me here I don't know if that's correct but it seems like in the P2P model maybe you don't need any kind of external price Oracle but in the P2 model you would need that yep that's correct absolutely and that's one of the reasons we're we really backed the peer-to-peer model here just because we're already seeing it with a few of the the beautiful protocols is because you have this time weighted Oracle so you need to have a Time weight

at Oracle because these assets are pretty illiquid so you know if you're just looking at the the immediate price it's quite easy to move the floor price of that asset if you own enough of them uh so so you have the time weighted Oracle which then means big whales in the market can they know when the next price move is is coming and they can essentially position themselves because they've got you know a lot of capital A lot of these assets to either move the the next um the the next price that you're gonna get from the Oracle around or predict what it's going to be and essentially um you know assets into the market just before just after uh one of those updates are going to be so um so I think that is a very key

difference between the two and I think the other big thing is predictability and control for the asset owners so you know if you own you know an autograph for example you know there's only 512 of them they hardly ever sell they're really hard to get the hold of once you've actually sold one they typically only sell it when the prices are going up when the markets are where the prices are going down I'll hold this is going to hold them uh and in that scenario you might end up as a in a peer-to-peer model maybe there's a there's a spike down in the price over the short term but you still want to repay because you believe in six months it's going to recover and you know that if you sell this asset now you're not going to be able to buy it back before before the price recovers

um and in a peer-to-peer model because it's fixed duration fixed interest it's you always in control you always know I need to pay this much on this date and it's my choice to decide if I do that obviously external circumstances might mean that you can't but still you're in control we're using these peer-to-pool models and actually on the blend model too where it's variable duration variable interest you're exposed to Market movements in that actual load and if there's a temporary price push down your asset might get liquidated typically these liquidations happen at the worst time because the Market's dumping is probably quite illiquid so it's just this is a different risk

profile and different kind of borrower who will do each one of the two so that you know variable interest variable duration is probably more suitable to a Trader who's trying to unlock some liquidity maybe to chase some yield in another protocol somewhere and as soon as that yield isn't profitable anymore you can just move the asset out of uh out of that loan and you kind of stop your actual license there whereas if you've got a fixed duration loan you kind of locked in for that period so you talked uh I mean yeah this is very helpful interesting so you both talked about lending right so the use case of lending and then you know this pool and pdpo model

aside from lending are there other major you know uh kind of types of D5 I don't know people trying to do like options or I don't know is there something like perpetuals or like I don't know what what other kinds of instruments have people come up with around nft yeah well you've took the two concepts that you touched on there there absolutely are and protocols active in that space um the and the perps side in particular um probably it's it's a different it's a very difficult um area again it comes back oftentimes to the issue of having an oracle for what is uh quite an illiquid asset

so there's nft purpose an example which is active in that space and they are in the process of revamping their protocol and to refresh it but one of the very interesting areas again is you know as we're positioning ourselves and have positioned ourselves as you know a very much a base primitive within the nft lending world you do get interesting Integrations with these other protocols whereby you know they're coming to us to talk to us hey you guys have the best regarded smart contracts in the industry you've been around for the longest and you know we would love to work with you and build our protocol on top of you so as an example we're actually in

discussions with an nft options platform who are you know going to integrate alongside us you know as part of that so potentially leveraging our smart contracts and settlement layer um as part of you know a major part of their their platform um but there are a lot of Innovations in the space so far I think one thing that has many protocols I've struggled with somewhat is just the level of liquidity in the market when you compare it to the fungible token or the erc20 token Market they typically tend to work a little bit better from a composability standpoint compared to nfts but that is something which we're seeing that's shifting yeah I think the that's a very important

Point even the most liquid nft collection is probably less liquid than the least liquid eoc20s right so they just um they just weigh less active so things like pricing is much more difficult um you know oracles are much more difficult so this is just this is some idiosyncrasies in the actual nft Market mainly due to not to so much the fact that it's an nft standard but the types of assets that are suited to being represented as an nft by definition are more unique they're not fungible they're less liquid so they just have a different set of properties that you know so certain products don't work as

well and there's you know new products that are kind of more interesting and different and I think quite a bit of opportunity exists in that as well in a market that's you know completely non-fungible there are areas where you can specialize and really um kind of take advantage of you know from A lender perspective lender perspective or as a borrower and for example you could specialize we mentioned earlier on the on the podcast but you could become you know a very specialized sneaker lender as an example um and although you you understand that um the liquidity in those assets from time to time might be a little bit

spotty but you are still comfortable and confident of taking on that inventory risk because you're a market specialist in that area yeah yeah and can you just talk like a little bit about sort of the size of the NFC market so if you compare you know nft with let's say liquid tokens and I guess there's a whole bunch of different dimensions that one could look at you know I don't know the total market cap or like trading volume or you know to the the size of the lending market and maybe the size of the landing Market you know relative to the total market cap I'm curious like what are some of the things that sent out to you the most

yeah so maybe I out can talk a little bit about penetration maybe you can talk a little bit about more like overall size of the market um so if you look at art lending for example in the traditional World um it's like 1.4 trillion dollar asset class it's got a roughly 15 penetration so 15 of that 1.4 trillion dollars is being held in collateral as a loan mainly with banks or and galleries and if you're looking at penetration in the nft space probably sub two percent at the moment uh you know it was a little bit higher I think at the peak of the of the the bull run but it's it's dropped a little bit now um there's a roughly 100 million dollars

in outstanding debts across all protocols at the moment uh for um nft lending uh but really you know kind of I think of this as similar to where D5 was pre-defy summer there was kind of you know these protocols um they kind of built the core product they've found some product Market fit with a core set of users who are very deep into the space and they kind of dry you know there's quite there's quite a lot of concentration around a few big holders quite a lot of conservations concentration around a few big lenders uh and kind of we predict that in the next Bull cycle you're gonna see that you know expand and explode quite significantly because now you're going to have this infrastructure and multiple

options to to cater to different types of users there so so that's kind of the overall lending Market size I mean if you can look if you think about the overall markets you know 56 percent of the estimated value in the stock market are is intangible assets a lot of them that are non-fungible right so if you're looking at the traditional world and the total value of all items in the world most of that value is actually non-fungible so buildings super tankers your car is non-fungible so um so so I think the total addressable Market of what's eventually going to be

tokenized and represented as non-fungible is as big or even bigger potentially than the USC 20 or the fungible Market but we still very very early in that adoption cycle yeah I'm just even to add there some additional stats as well just to give you a sense like you look at the global equities Market it's about 120 trillion Global real estate is 320 Global debt markets 300 so you know roughly between all of those if you kind of get uh you know roughly even at like two percent penetration there you begin to actually eclipse the size of the erc20 market in and of itself and maybe in the near term

two percent is a little bit on the high side but you know I can easily see in the next maybe let's call it two to four years like half a half a percent of some of those assets starting to come unchain um because we are speaking to a lot of the protocols behind you know that are that are actually actually doing this and you know it's happening a lot faster Pace than people I think realize one thing I'm curious about so I was like looking at some of the stats and I mean first of all what stood out to me was that like you know actually Nifty five stats look like pretty good right where okay it's down a bit but not that much right from like the sort of peak uh and

then you know there was also like is that for um so yeah I mean there there you felt like well that probably looks better than most like defy uh charts right for like D5 protocols but then when there was also the thing where you had the like the other lending competitors and then you have basically like blur coming in like a few months ago and just now having on these charts at least it's correct like something like 90 of the loan volume I'm curious can you talk a bit like what happened there is that correct like what's what's going on and what what did blur do yeah yeah so so I think important thing to for some reason volume really has

been the metric that a lot of people look at in the nft uh Landing space which doesn't really make any sense right and if you're looking at um D5 learning protocols you're not looking at Daily volume what you're actually looking at is tvl right so how much data is collateralized in the in the protocol and that's very much a factor of two things it's both your volume and your duration and and so what we're seeing in blend is if you compare them to so blend is the blur lending offering that they've got so if you compare their durations to the peer-to-peer protocols you know so our average duration is almost 40 days

um the average duration for a blend loan is 0.9 days 0.94 roughly so they just have to do significantly more volume to keep the the outstanding debt um so that's um so that's one thing that's kind of it's very much skewed so looking yes they do 90 of the volume but they need to do six percent of their outsiding date every single day just to stay in in the same place so on the outstanding dead side they're actually kind of more in line with everybody else you know in the 18 to 20 million um dollars at the moment that makes perfect sense yeah yeah no and I agree I agree with your reasoning that seems like a more relevant metric for a protocol like that exactly and then I mean the other thing that's also

happening um there with with blur and blend is that there's very strong token incentives at the moment that are um going on and uh just because of the way the incentive structured is uh the incentive structure is set up uh taking out a loan as part of your Pros if you're trying to maximize the number of points that you low points that you're getting as part of a specific trade taking auto loan on an asset that you bought in a bid and then selling it out of the loan contract actually gives you extra points because you get bonus points for taking out a loan and selling assets out of the loan contract means you bypass royalties so it's actually

the cheapest way to to sell an asset so you'll see a lot of the blend volume is is really function of the spot volume so the more people are kind of getting assets hits on bids the more likely they are to take out a loan and it's just part of that kind of optimization Loop that people are using now the royalty swing is interesting does that uh does it have some applicability as well in the Nifty five case like let's say in case someone's loan gets liquidated data then royalties are due for the Creator yeah at the moment the the aren't royalties being paid out um on a liquidation just because it's quite difficult to have a

standardized um unchain way to know exactly what those royalties are so you know are things all get settled as part of the actual loan smart contract uh but you know so we're very open to adding those in uh what's there is a like a fully Unchained way to actually determine what the royalties are for a specific project and then typically at the end of a loan if it's been liquidated the lender will go to one of the various marketplaces and sell it there and determine at that moment in time whether they would like to or not pay the royalties at that moment okay because paying royalties is something that's sort of like de facto is mostly optional or how does it work

pretty much you know there's there's not an easy way for protocol for projects to enforce this at the Smart contract level and we've seen a number of projects essentially migrating their um the ERC 721 contracts to allow them to block um marketplaces that bypass the actual royalty payments so we'll see where that kind of ends up you know it's quite a it's a bit of a uh you know Game Theory um setup there where you kind of asset producers are trying to maximize their royalties while platforms are trying to you know maximize volume so the cheaper the cost of transaction the more likely you are to take to take that volume

um I think you probably see you know these real world assets platforms I suspect will probably have a little bit more power to enforce royalties you know because because they actually own the physical asset you know they can just say well you can't redeem this asset until you've paid royalties on that um that are actually due so so I think that they've got a stronger um mote in terms of uh royalties as being a um value stream for them uh and this is another reason I think a lot of the projects that raised money kind of during the last big bull run a lot of them were really relying on royalties to to kind of be their ongoing

um cash flow and revenue and that's largely evaporated over the last six months or so yeah that's interesting I mean I guess it was always something that was kind of like well can you really enforce that right and that's interesting how quickly that seems to have sort of moved to the you know I guess equilibrium of everyone ignore the royalties exactly yeah I think I think it's a scenario that's a big double-edged sword in that for creators uh the blockchain offers you a new Avenue to access uh consumerist customers which you know from which you can you can generate Revenue but on the

other side of that one of the great aspects of uh ethereum in particular is the permissionlessness of it so that you can create essentially ways around um you know giving creators their their Jews essentially so um definitely a double-edged sword there can you talk a little bit about this uh maybe comparing blend and nifty-fi or maybe or there like what are the other kind of nft lending protocols doing and what are kind of the main dimensions on which they differ yeah so I think um you're thinking about peer-to-peer versus peer-to-poo that's a little bit more on the technical level um if you're looking at it from an end

user perspective yeah I think the big distinction there at the moment is is it fixed duration or variable duration and fixed interest versus variable interest and that just you know fixed duration um fixed interest is just much more interesting for us for a specific user cohort so typically people who have longer term views who are collecting these assets because they want to collect them and they actually want to hold them over the long run and then there's a separate cohort which is much more Trader focused or like much shorter term deals trying to maximize yield over you know 48 to you know 72 hours something like that and those types of asset owners really

prefer variable duration variable interest because they can come in and out of those loans in a short period of time and then you know then I think the other thing which is a little bit less of an issue right now uh which was but more of an issue in the in the past and I think will become an issue again is can you actually use this asset while it's being used locked up in an actual loan right so at the peak of the bull run you would have lots of air drops and events and you know you had to sign into this Discord with your board ape so that you can get access to this other thing that then gives you a mental there's other things so you know you wanted to be able to use the asset one in escrow so

um typically the um it's easier to do that in peer-to-peer versus beer to pool because assets aren't all like pulled into a big bucket together um but I think that is the big uh differentiator right now um and then and I think over time as these assets become more and more have more of a history you know people are more willing to land over the up on them over the long run you know I think features that really Drive longer duration are going to become more important over the next six to 12 months I'm actually curious to ask about that so yeah like using the nft while it's being used let's say on Nifty five as

collateral does that like how does that work it does it depend on the particular nfts and yeah so that becomes a little bit more tricky because you start running into this issue where um each nft has some idiosyncrasy synchricities on how you allow how you can use them what affects the value all those kind of things but so our solution to that is um it's should be going live in the next few months uh we've got an integration with uh gnosis safe and what that allows us to do is at the moment what happens is we have a single escrow contract that all assets go into uh so instead of doing that what we will allow users to

do in the future is you meant a new niftify safe which is just a nurses safe where you as well as the Nifty five protocol are signers on that actual um on that safe and then essentially what we do is we block transfer of that asset during the loan period so it goes into the safe and then the safe in combination with our actual protocol just says this asset is not transferable so it blocks any transfer methods on that acid for the duration of the loan as soon as the loan is finished that transfer gets unlocked again but everything else you can still do so you can you know you can still use that safe to connect to a Discord using

um wanted to connect you know you can connect to any application that that uses that asset and use it as is in the game as long as the transaction doesn't result in a change of ownership of that asset at the end of it we'll just refer to any transaction that that does that yeah that sounds like an elegant uh solution yeah yeah it's a little bit more complicated and tricky than just kind of building a like a vault that's like protocol specific but you know I think that the right solution there is to plug into the you're gonna infrastructure that has proven itself to be the core part of web 3 really um and you know we don't they need to

you know as account abstraction gets added on to nurses safe and they add additional features you know you get all of that for free um just by using that as your escrow wallets inside Nifty five and and then do you have to also take into account I think you mentioned it before a little bit like oh what if they're like other things that somebody could do with an nft that maybe I don't know changes they've had damage the value yeah something like that yeah I think that that becomes really difficult to handle in a generic way right so so I think that there's always going to be some you know doing these kinds of loans in these like segregated escrows what we would be calling it

really um you know for Arts 99.9 of the time it's going to be fine for gaming assets maybe not right so I give you a good example of this is um say you've got a cryptokitty uh a crypto Kitty a virgin crypto Kitty is more valuable than a crypto Kitty that's been bred now that doesn't change ownership but that's purely based on the internal mechanics of the game and the community that people value virgin crypto kitties more than they do at the non-virgin ones now that's really difficult for any third-party platform to go write a set of rules for that make that acceptable for every single

possible asset out there so so do you think that there's always going to be some customization you know one of the big things we are doing as we kind of keep evolving the protocol is finding Hooks and places where people might want to inject some custom logic into into the process you know so basically being able to say well when we lock a crypto Kitty in this in the the escrow smart contract there's an extra set of validation that you need to do to make sure that the actual transactions can go through obviously there's there's some gas costs um implications there but I think over the long run in general this is a problem that you have much more with nfts than you do with erc20s because

most eoc20s basically operates in the same way you know they don't have built-in logic and built in you know properties that might change as part of in usage inside of another protocol whereas because an nft can really be anything it's just a unique digital ownable thing it can really be anything so in some scenarios it's harder to have very generic pieces of of infrastructure built for them when what is the what is the nitty High roadmap look like what uh what's next for you guys to build yeah so so what I uh mentioned earlier you know duration I think becomes really

important so you know so different features that really make it easier for um both borrowers and lenders to take more risk over longer duration uh so um you know things along that lines are things like refinancing uh interesting only loans where at least the the lender is getting interest payments uh during the actual loan period um you know potentially early repayment of loans so that you can take out a long loan but uh you know repay earlier there's no so safe that we that we spoke about uh you know so and then a number of different things that just make it more efficient for lenders to deploy Capital so um you know

at the moment we've got you can make offers on individual assets you can make offers on uh like a whole collection and then we've got API Integrations like storm said uh where you can kind of watch our audiobook and make these individual offers by just expanding that and kind of making it easier for Less technical people to compete with what the Bots guys can do making the collection offers more powerful being able to limit it to specific ranges um you know those kind of things and so where are the where are the interest rate levels at the moment varies a lot depending on the assets so storm the spends day in day out dealing

with these things maybe he's got a better view there yeah absolutely absolutely um I suppose because the first concept it's been fascinating to watch even over the last uh let's call it six to twelve months rates just continuing to fall across the board and that's really a function of there's quite a lot of lenders who are actively involved in the space and like really um actively deploying Capital against nft loans and so as a result the more lenders more competition it's fantastic for borrowers because they're essentially competing um to undercut each other to secure these loans from borrowers so you know where are rates more specifically

um so probably for something like a crypto bunker maybe I can go through kind of some of the the more major collections that are active on the platform something like a crypto Funk as an example if you wanted to get a 30-day loan you could secure somewhere in the range of 80 to 90 percent loan to value at a rate of in in the range of let's call it eight to ten percent APR um and actually similarly for one year duration loans against crypto plunks you could probably look at somewhere in the range of 70 to 80 percent louder value maybe a little bit higher on the IPR side let's call it 10 to 12 percent and again that's for for a one-year loan so probably you know alongside punks there are two other you know what we term like

the really true blue chip collections like we're we're lucky we have a very unique lens through which we see the nft market there's like the nft credit markets um and so we really get to see like what collections are being underwritten or underscored as like the True Blue Chips because of hustlelander is like offering the lowest rates for the for the longest terms and so alongside punks you also have chromie squiggles by of course the legend that is snow throw and then Auto glyphs as well an early larva Labs uh general of our project so they're probably your main three lowest highest LTV and also lowest APR collections and then for other collections more let's call it um you

know other kind of profile pictures that that you might classically know um Apes for example is going to be a little bit higher on the on the IPR side maybe in the range of 15 maybe looking at something like a 70 LTV um and then as you migrate across like the risk Spectrum let's call it so the lesser-known projects you probably get up to maybe in the range of 20 to 40 APR and the typical durations there are around 30 days so that the classic duration on the platform is 30 days and it would actually maybe some of the best art blocks curated collections you're probably getting similar rates to um the squiggles and auto glyphs right maybe slightly slightly higher maybe

slightly lower LTV just because they're not quite as liquid but you know things like fidanzas or ringers um you know those those kind of top tier art projects are also getting rates kind of in that in that same range yeah that's a great Point there's a very strong bid on on the kind of top tier art blocks across the board and actually just generally are blocks more generally uh too so the the kind of full collections of art blocks there yeah thanks so much that was very helpful this is like a kind of related topic I wanted to talk a little bit about uh so you know Steven you know you mentioned in the beginning right you're an artist and that you you needed some work around generative art

I'm like wondering also like zooming out a little bit you know what's the what's the state of the nft Art Market and what do you feel are the most interesting and cool things happening yeah so I think broadly you have two big groups um so it would be the fully Unchained generative art and then more than one of one Arts uh where it's um is not fully generated on chain you know the answers produces some kind of digital image that they then associate with an actual nft versus the fully Unchained generative art which is you know Auto Glass art blocks and you know

there's a few other protocols that are that are doing that now and these assets essentially the image itself is not stored on chain what's stored on chain is an algorithm that given a specific hash can regenerate that image at any resolution so so those are kind of the two broad groups I would say in the unchain art side of things the generative pieces are typically part of a collection so you know the 512 autographs uh you know there's um so so there's more of those assets so they typically have a larger collector base which makes them a little bit more liquid so they trade a little bit more

often so it's easier to know what the price is if you do get a default you it's easier to to um to sell those items again so so those are kind of the two broad cut categories there I think both of them have found strong product Market fits you know store maybe you can talk about some some big sales and prices and how they've held up in the um in the recent Market yeah I look exactly though so I think it's been very interesting as the profile picture markets across the board has kind of been relatively weak and and the prices has lowered let's call it over the last six to nine months where you look at the higher end of the arc blocks Market in particular it's

actually remained very very solid and stable and in some Pockets has increased significantly I think when you look at something like the recent uh Goose sale at Sotheby's for a 6.2 million dollars I mean this is a category which is here just a you know it's it's known um that there are some ultra high networks and high net worths now starting to double in the market and build their collection in the generative Art Space so I think it's a category that becomes of increasing interest to the traditional art world and then as a result you know um there kind of are these well-established credit markets which exist alongside them as well which actually help to support

um the prices of those assets as well because when you are seeking liquidity against the assets instead of previously your only option was either to sell the asset whereas actually now you have two options you can sell the asset and or take a loan against it which is actually a very typical approach with art collectors in the traditional art world yeah and I think like another way to think of that a little bit is to say is to say you know profile pictures at 30 eth are very expensive for a new kind of asset that still needs to find like exactly words deriving its value from whereas you know so there was a recent autoglyph

sale for 200 ether that's very cheap for one of the well basically the first example of a new category in modern art right so so there's and then a lot of these ultra high net worth individuals that storm was talking about uh they aren't necessarily crypto native if they own traditional artworks uh and and they're buying in dollars so you know when these asset prices for these nft um art um assets are dropping in ether terms at some point these collectors are looking at there when they're like well you know

in dollar terms that's actually just really cheap for what I'm buying here and that's kind of why I think you see this floor almost in the dollar price of some of these assets and as ethereum fluctuates it just doesn't drop below that specific floor because there's a set of buyers that I just say okay 30 grand or 50 grand for a for a crypto Park is actually cheap so whenever they drop the light below that price of USD terms I'll just buy them and what's the what is the impact of AI on all of this so AI art is a category itself I think is actually quite fascinating and it's one that I'm actually very passionate

about um probably one of my favorite collections that's out there if not my favorite are the Lost Robbies by Robbie Barrett uh fascinating story behind them um and I mean it's very interesting to see whenever one of these trades typically they range in the let's call it 175 feet to 300 each range of of uh trade prices it's very interesting to see a very visceral reaction of people on Twitter um about how you know some people just consider it completely uh you know disgusting or they just don't don't get it and I think when you look at pieces

of Art and and it actually has that like emotive uh capacity you're probably looking at what is quite a powerful piece of art um so I think as a category it's fascinating again in some ways it's similar to emergence of generative Arts where you're marrying um the medium of the blockchain with art I think it's very interesting here this is the new dawn of your marrowing medium of AI the new emergent category with art as well and I think as you uh transverse the art history timeline you know in many years time they will actually be two seminal moments in in art art history being uh you know blockchain based art and AI based art as well yeah exactly and I think also the the

blockchain based arts and AI based art feed into each other in a way because one of the biggest reasons you know it's generative arts and Digital Arts has been around for quite a long time they just they just never re it's really hard to actually as a museum or as a collector to buy there right like what are you actually buying you know um are you buying a TV that's representing these these images or you're buying a print out of that image but you can print as many as you want there and and I think if you didn't have the blockchain AI art would probably be less interesting because I think it would be

AI Graphics then as opposed to AI art because you can't say that this is an original and this is the one that I'm actually actually selling so um you know this is another reason why I think on chain art as a category is just gonna keep growing because it's going to be new things you can do you know like you know new technologies come out but it's now just a new medium in the same way that you got painting and sculpting um and performance art now you've got um on-chain art as well I think when you look as well like the rafikana doll piece that's in the MoMA in New York at the moment I mean I saw it in person it's AI generated absolutely fascinating

absolutely captivating and you look at the people sat there for 20 30 minutes at a time just taking it in which just simply doesn't happen with traditional you know painting medium for example that existed to date so I think you know we live in this attention economy and these artworks as an example are generative artwork as you watch it watch it render in is part of the the fascinating engagement that you have with that work in the same way you know the Rafiq piece is just it's utterly captivating and it's taking art I think to the whole whole new level cool no I really appreciate that I mean maybe just a final question here so you know you talked in the beginning we talked quite a bit about you know

different categories on ft's real world assets and you know how like so broad many came to the actual you know nft lending Market is is that still kind of all focused on some of these art and pfp type things and hasn't yet reached to you know all these new types of nfts yeah so I think they aren't that many assets yet that are real world assets that are being represented uh like like storm said we're speaking to a lot of people at the moment and and you know what happened in this last Bull Run is exactly what you'd expect the the fully native crypto assets that are you know don't require High transaction through

but you know don't require um a lot of speed and and um uh transaction capacity are the ones that found product Market fit so art really right and some of these phps so you're gonna saw them taking off and then you saw all of this infrastructure being built out so you know like we mentioned perps lending um where you've got indexes you've got functionalization you've got 24-hour marketplaces so now all of this infrastructure has been built and a lot of teams saw the potential there and and then started raised a bunch of money and now started building out the infrastructure needed to bring more of these real world assets on chain and so

we started seeing some loans um on these assets you know so we've done some lines on some empty empty land uh you know there's been some loans on Rolexes uh you know so so these things are starting to happen but there's just quite if there's just not that many assets yet that are uh that have been pulled on chain as those grow uh you know the ones that we really see taking off initially are the ones that we say that are more collectible like um because there's a big overlap in the user base there's a overlap and how they trade does it overlap and how you price them they're all pretty liquid so the characteristics of those assets are

quite similar I suspect once they come on chain those assets actually will be better collateral than most nfts just because um the thing that's new is how you represent the asset but the asset itself has got a much longer trading history than uh what you know the new crop of crypto native nfts uh have so so you'll much quicker see higher LTB lower APR longer duration loans for these assets and I also think that there's quite a lot of collectors who are sitting on quite a lot of value that they just can't access at the moment because if you've got a 50 000 watch it's actually

quite hard to get a loan from A bank on that you know if you've got a 50 million dollar painting sure you can do that so you've got a 10 million dollar super rare watch sure banks will kind of go through the the effort of actually giving you a loan but there's a huge amount of value in the you know 20 to 100 000 range that just basically sit there at the moment so um the the benefit of actually bringing these things on chain purely as a way to to collateralize it uh really becomes um quite interesting I think broadly you know alongside the tokenized Collectibles there it's probably um four main categories of of real world assets one of which as mentioned is the

tokenized collectibles you probably will start to have tokenized equity and um token positions essentially so um from classic crypto Investments so that I think that will start to look quite interesting a lot of other tokenized Financial assets so bonds um stocks items like that and then you'll lastly also have tokenized real estate and real assets but of course the regulatory friction that comes with all of those items is much more significant than tokenizing a comic or a trading card or a watch as an example um so I think those but with that being said once we do get that regulatory

unlock you start to then get like a very material addressable Market of real world assets on chain and accordingly then a material credit Market that sits alongside it cool well thanks so much uh guys both for coming on I think this is really great uh overview of like NFC finance and lending and you know I think it makes a lot of sense so I just uh the enormous thing that's ahead of us so I'm excited to see how that's going to develop and how these markets are going to evolve and so thanks so much for joining us yeah yeah we're excited we're you know we're in it for the long run um yeah it could be safe sometimes this with this value there's Finance right so you know as the value of things

represented by nfts increases the the size of the the financial ecosystem around they will just grow um in accordance