Illustration: Aïda Amer/Axios
Astaria, a decentralized finance (DeFi) project co-founded by ConsenSys and SushiSwap alum Joseph DeLong, has raised $8 million in a round that included True Ventures, Arrington Capital, Wintermute and many others.
The platform will allow holders of valuable non-fungible tokens to lock them up as collateral and borrow crypto against them, so the holders can then buy other NFTs, plus trade and invest in decentralized finance. For borrowers, liquidity is instant and liquidations are more predictable.
- Astaria should launch in Q3, according to the project. It's doing demos at NFT.NYC on June 22.
Driving the news: Amid a brutal downturn in all things crypto-related, a lot of the air has been let out of the NFT market. But Astaria's fundraising success suggests the obituary for the sector may have been prematurely written.
There's still a lot of wealth trapped in non-fungible tokens. Volume is down considerably in the NFT market, but it's definitely not gone, DeLong's cofounder Justin Bram told Axios.
- Lending against NFTs allows holders to access that wealth and put it to work. But there's still a lot of turmoil in the industry.
- Right now at least one major hedge fund, Three Arrows Capital, is getting margin-called, and it's probably selling a lot of extremely valuable NFTs as it goes.
- Still, "with our system they wouldn't have to default," Bram said. In theory, they could access part of the value of those NFTs with loans instead.
Normal people could benefit as well. "A lot of these people who hold apes are NFT-rich and cash-poor, and we want to fix that," DeLong said, referring to the Bored Apes Yacht Club, the most valuable single collection of NFTs in the world right now.
Situational awareness: Decentralized finance and NFTs have been dancing around each other since at least 2020. Astaria is not the only company to enter the NFT lending space, but it believes it can advance the product significantly for users.
- "We think this will add rocket fuel into the NFT industry," DeLong said.
- Prior entrants include NFTfi, JPEG'd and Metalend.
Astaria uses an appraisal system in which a knowledge worker writes a term sheet about an NFT that reflects its particular characteristics. The appraiser decides how much can be lent against the NFT, the length of the loan and the interest rate, and can even craft some special terms.
- If investors like the term sheet, they can post assets for borrowers. If borrowers like it, they can accept the loan.
- Loans that perform will drive income to appraisers, so they have an incentive to write terms the market will like.
Astaria has also crafted special functions so that borrowers can still "use" their NFTs somewhat if something special comes up (such as accessing a party or unlocking a gift for holders).
Be smart: Price discovery in NFTs is very tricky. All Bored Apes are not the same (not even close), for example.
- As DeLong explained, if you have 100 of some NFT and somebody buys one of them for a million dollars, that definitely does not mean you have a $100 million collection.
Reality check: It's a complete bear market in crypto, and future growth is looking dicey at best. So it might seem like a crazy time to build a company around lending against JPEGs.
- But the Astaria team is looking 3-5 years out, toward the next generation of NFTs that do much more than early versions.
- "We're very much focused on the long game," Bram said.