A creditor of the recently bankrupted cryptocurrency exchange FTX has utilized a decentralized finance (DeFi) protocol called Arcade to pledge a claim as collateral for a loan.
This groundbreaking transaction marks the first on-chain loan backed by an FTX claim, as reported by the bankruptcy claims platform Found.
The creditor tokenized their claim, representing its ownership through a nonfungible token (NFT). On June 23, this NFT was utilized as collateral to secure a loan of $7,500, which is expected to be repaid within a five-day period.
In the event of a payment default, the lender retains the right to claim the collateralized amount, which stands at $31,307.
This transaction exemplifies the concept of real-world asset (RWA) tokenization, wherein blockchain technology is employed to represent ownership rights of tangible assets.
DeFi has emerged as a prominent sector for asset tokenization, enabling a wide range of real-world assets such as stocks, government bonds, real estate, and commodities to be tokenized.
Found took to Twitter to disclose that the original creditor and lender underwent biometric Know Your Customer (KYC) and Anti-Money Laundering (AML) screenings.
The company’s website reveals that users can access loans using bankruptcy claims as collateral, subject to a 10% transaction fee upon successful trades.
FTX, the cryptocurrency exchange that filed for bankruptcy in November 2022, has locked billions of dollars in user accounts pending court proceedings.
Industry estimates suggest that FTX claim holders may recover between 35% and 66% of the face value of their claims.
The rise in crypto-related bankruptcy cases, particularly associated with the collapse of FTX, has inundated the courts over the past year.
Genesis Global Trading and BlockFi are among the crypto firms involved in these cases. As a result, there is a growing demand for on-chain claims solutions.
Found, which launched earlier this year, and Open Exchange, a claims trading platform established in April by the co-founders of the collapsed hedge fund Three Arrows Capital, are notable players in this space.
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