Michael Levy made a fortune of $20 million in just 6 months thanks to an early $175,000 bet on NBA Top Shot, a non-fungible token marketplace where sports fans can buy and sell video clips of players from basketball.
Then, as the project exploded into a billion-dollar economy, Levy and a few other early adopters refined the idea of a decentralized lending platform where users could get quick cash by borrowing against Top Shot moments. Paying homage to Flow, Top Shot’s host blockchain, they called it Flowty.
The move caught the eye of NBA development company Top Shot and Flow Dapper Labs, which invested in Flowty’s $4.5 million seed round, announced today, alongside Greenfield One and Lattice Capital, among other investors.
“We’ve always had this thesis that games are the gateway for people to decentralize their lives,” says Mik Naayem, Chief Commercial Officer of Dapper Labs. He thinks Flowty plays a “crucial” role in proving this thesis.
The platform works much like a pawn shop, except there’s no middleman, says Levy, co-founder and CEO of Flowty. The borrower creates a list defining the desired terms and putting in place a single NFT as collateral for this loan. If someone decides to fund it, they either get their money back with interest or the borrower’s NFT, which is locked to the platform. If the NFT is transferred out of the borrower’s wallet before the loan is funded, the list becomes invalid.
Flowty collects 10% interest from the borrower on a loan. Loans can be denominated in FLOW, FUSD (the dollar-pegged stablecoin of the Flow blockchain), tUSDT (the Flow blockchain version of Tether), and USD Coin. No internal ratings or customer checks.
“We do not provide subscription services in any way. We do not advise on specific loan listings. We never keep collateral and we never keep tokens,” Levy notes. “By legal and regulatory standards, we are simply a technology company.”
What could go wrong? A few things: the NFT or cryptocurrency used could lose a lot of its value over the life of the loan. In that case, says Levy, “the borrower probably won’t repay, and then you’ll receive an NFT that’s worth less than your loan amount — that’s the risk you’re taking.”
A borrower with an outstanding loan could also lose access to their account or the platform could be hacked. In February alone, hundreds of NFTs were stolen from users of the largest NFT marketplace, OpenSea, in a phishing attack. Not to mention that the Flowty loan is a relatively complex operation in itself. The founders do not hesitate to specify these risks.
“I would not recommend [Flowty] to someone who doesn’t understand NFTs or doesn’t understand NBA Top Shot,” Naayem says. “But people who have spent time there, analyzed it and understand the risks and benefits, I think it’s a great way for them to interact with that part of the ecosystem.”
Since launching in beta mode less than three months ago, Flowty has processed over 150 loans averaging $4,000-$5,000. The metrics are modest, but the team is already planning to add more NFTs (only NBA Top Shot and Ballerz collections are currently supported) and expand to other channels.
Despite market fatigue (in March, the average selling price of an NFT fell from over $6,800 at the start of the year to under $2,000, according to market tracker NonFungible), platforms like Flowty are actively raising capital. Yesterday, NFT lending protocol MetaLand announced that it had raised $5 million in seed funding led by crypto investment giant Pantera Capital.