FTX Creditor Secures On-Chain Loan

A creditor of the defunct cryptocurrency exchange FTX pledged a claim as collateral for a loan under the Arcade decentralized finance (DeFi) protocol.

According to the bankruptcy claims platform Found, the transaction was the first on-chain loan secured by an FTX claim.

The proprietorship of the $31,307 claim was represented by a non-fungible token (NFT). The NFT was used as collateral for a $7,500 loan on June 23, due in five days.

In the event of nonpayment, the lender has the right to the claim.

The transaction is an example of tokenizing real-world assets (RWA), in which a token represents the ownership rights of a purchase on a blockchain.

Asset tokenization is one of the most prominent areas within DeFi, as a wide variety of real-world assets, including equities, government bonds, real estate, and commodities, can be tokenized.

Found stated on Twitter that the initial creditor and lender passed their biometric Know Your Customer and Anti-Money Laundering checks.

According to the company’s website, it grants consumers access to loans secured by bankruptcy claims for a transaction fee of 10% on successful trades.

In November 2022, crypto exchange FTX filed for bankruptcy, securing billions of dollars in user accounts pending court proceedings.

FTX claim holders could recover between 35% and 66% of their face value, according to some estimates.

In the past year, crypto-related bankruptcy cases have flooded the courts, with many arising from the collapse of FTX, including cases involving Genesis Global Trading and BlockFi.

The increase in bankruptcies is propelling the development of on-chain claims solutions.

Found, for instance, was introduced at the start of this year, and the co-founders of the defunct hedge fund Three Arrows Capital introduced the claims trading platform Open Exchange in April.