NFT startup raises $15 million to build lending platform for high-value tokens
In its attempt to bridge the gap between the traditional art market and new digital asset classes, NFT lending start-up Arcade announced Wednesday that it had raised $15 million in Series A funding to develop its platform in the financialization of high-value, non-fungible tokens, or NFTs.
The funding came from eight investing firms, including Pantera Capital, Castle Island Ventures and Franklin Templeton Blockchain Fund, as well as angel investors Zac Prince, CEO of BlockFi and Richard Ma, CEO of Quantstamp. Proceeds from the $15 million funding will go toward building the Arcade platform.
Formed in 2020, Arcade is an NFT marketplace for lending that independently appraises, validates and curates NFT collections and that enables owners of highly valued NFTs to use them as collateral for loans. Robert Masiello, co-founder of Arcade, said in an interview with ZDNet that the platform is for both borrowers and lenders. "If you own high-value NFTs, you can borrow against the fair value. We support about 45 to 50 different NFT collections, so it's for NFTs that have some amount of value against them," he said.
On the flip side, Arcade lets people become lenders, enabling those willing to lend capital to people looking to borrow against their assets. These transactions go onto a smart contract platform on the Ethereum blockchain, fully compatible with all ERC20 tokens, including wETH, USDC and DAI. "We're a non-custodial platform," Masiello said. "We don't have any access to anyone's assets or any of the money being exchanged. We take a service fee for providing this smart contract system, but it's essentially a non-custodial escrow platform on Ethereum."
Over the past few months, Arcade has made about $3.5 million in loan volume in "private release" but has plans to open it to the public in January. Masiello noted that Arcade has been open only to multi-million-dollar NFT collectors and institutional lenders but also with decentralized autonomous organizations (DAOs) -- a type of venture capital fund based on open-source code without a management structure or board of directors. "We've had a mix of different constituents and people using the platform on the lending side, and on the borrower side it's been primarily high-value NFT collectors who don't want to sell their assets, but rather want to put them to good use," Masiello said. "They're taking the proceeds of these loans and reinvesting them into NFTs, decentralized finance and other forms of crypto and financial products without having to sell their assets."
One unique characteristic of Arcade is its use of Wrapped NFT technology. This proprietary technology allows multiple NFT assets to be bundled and utilized to acquire a single loan, enabling the acquisition of larger loans and greater liquidity. According to the company press release, Arcade will also enable developers to build on top of the platform, supporting the broader utilization of new digital asset classes.
NFTs are perhaps one of the most misunderstood digital assets to emerge in the blockchain field, in that many are hard-pressed to define what they are. Simply put, they're unique units of metadata and identification codes that exist on a blockchain, such as Ethereum, and that can't be replicated, like fiat currency or bitcoin. They are typically in the form of digital files such as photos, videos, computer-generated artwork and audio clips. These files can be "tokenized" so that they can be bought, sold or traded securely and, therefore, can be valued monetarily. Put another way; many NFTs are the digital equivalent of a priceless work of art. Think of DaVinci's Mona Lisa. Although the Mona Lisa can be replicated in various formats, there's only one true Mona Lisa.
But NFTs are more than just digital artwork. They can take the form of digital products, from luxury brand fashions and collectibles to real estate and online gaming. Masiello notes that Arcade supports any NFT, be it digital collectibles or avatars in-game assets. "I think the universe of what an NFT will be in the next five years will continue to widen and fan out. Everything can be an NFT or have some sort of NFT associated with it, but the art angle is very relatable to people because they understand that art can be bought and sold and that it has this provenance associated with it. We're enabling a financial utility that has existed for art prior, but now this universe for us of what could be borrowed and lent against is just so much bigger than just simply art. It's for the whole token standard for the NFT," he said.
Arcade's $15 million financings may be an initial small step, but with the help of its financiers who see the potential expansion of the NFT marketplace, it could be poised to take a giant leap in a sky's-the-limit digital economy. "We're going to keep hiring and adding to the team," Masiello said, noting that he and his staff of 13 will continue building products, adding to the team and boosting marketing efforts. "We believe Arcade will act as a portal to this financialization of NFT's concept, which will effectively take on other types of products beyond just simply this peer-to-peer lending platform. We're trying to make our platform be as similar and also innovative as the leading and crypto companies out there but with a focus on NFTs," he said.