A new lending project – Rocket – just announced their first NFT-backed loan.

For those unfamiliar with Non-Fungible Tokens (better known as NFTs), these are tokens which have unique characteristics. They are not mutually interchangeable by their individual specifications, meaning each token is different from the next.

In the case of Rocket, users post collateral in the form of NFTs in exchange for Dai.

The project is structured as a DAO, meaning funds are stored using a smart contract, and can only be issued to back a loan if consensus is achieved by the Rocket shareholders at large.

The project was launched less than a month ago and has seen steady growth in terms of supplied capital, with roughly $10,000 currently held in the Rocket Bank.

Rocket’s Genesis NFT Loan

The very first Rocket loan was for 2000 DAI, issued with an interest of 14% APR and backed by $5000 worth of Decentraland Virtual Land in the form of a $LAND token. With the full launch of Decentraland less than a month away, the timing of this loan is far from uncanny.

The loan is 6 months in length, with repayments every 60 days. Dividends earned from interest are share pro-rata amongst Rocket shareholders.

The proposal can be viewed and voted on-chain via Rocket DAO’s front-end, with a Mintbase NFT being created as a contractual obligation to repay the loan.

The borrower of the loan – “John M.” – has agreed to open a Maker Vault with the loan, thus retaining exposure to ETH in what’s appearing to be a bullish quarter for the second-largest cryptocurrency on the market.

Why Should I Care?

With Loan 0, Rocket is beginning to tread uncharted territory. Whereas lending protocols like Maker and Compound have established tried and true frameworks for supplying and borrowing assets with known market values, NFTs are slightly different.

While there are secondary markets to help approximate the value of an NFT at any given time, there are many more external factors influencing the “face value” of a given token for any loan.

As such, Rocket ultimately needs to be much more active in their due diligence process both on the borrower themselves and the token being posted as collateral.

The project has been very vocal on their stance of trying to ultimately get to a place of issuing loans in an autonomous fashion, but for now, we can appreciate how active the DAO members are when it comes to sourcing new deals to prove out a new use-case.

Over time, it’s likely that Rocket witll provide mechanisms for under collateralization, likely giving it an edge over something like Maker which requires a minimum of 150% overcollateralization.

In the meantime, we can watch this process play out live.

To stay up on all thing Rocket, join the official Telegram channel here.