Tokenized FTX Claims Used as Collateral for Loans

A creditor of now-defunct crypto exchange FTX has claimed it as collateral for a loan to decentralized finance (DeFi) protocol Arcade. According to bankruptcy claims platform Found, the transaction was the first on-chain loan backed by an FTX claim.

The $31,307 claim was tokenized and its ownership represented by a non-fungible token (NFT). The NFT was used as collateral for a loan of $7,500 on June 23, to be repaid in five days. In case of default in payment, the lender is entitled to claim.

✨Congratulations to wagmiclaims.eth for being the first onchain! #RWA loan backed by a #ftx #bankruptcy Claim

WAGMI is happy to spend some cash @azuki Vegas party this weekend

special thanks to @arcade_xyz to create a great platform pic.twitter.com/l8n8jGyKpp

— found (@foundxyz) 23 June 2023

The transaction is an example of real-world asset (RWA) tokenization, in which a token represents the ownership rights of an asset on a blockchain. Within DeFi, asset tokenization is one of the hottest areas as a wide range of real-world assets can be tokenized, including stocks, government bonds, real estate, and commodities.

On Twitter, Found said that both the original creditor and the lender went through its biometric Know Your Customer (KYC) and anti-money laundering (AML) screening. According On the company’s website, it allows users to access loans using bankruptcy claims as collateral, subject to a 10% transaction fee on successful trades.

Crypto exchange FTX filed for bankruptcy in November 2022, leaving billions of dollars locked in users’ accounts pending court proceedings. According According to some estimates, FTX claim holders could recover between 35% and 66% of their face value.

The courts have been flooded with crypto-related bankruptcy cases in the past year, many of which stemmed from the collapse of FTX, including those of crypto firms Genesis Global Trading and BlockFi.

The rise in bankruptcy filings is driving on-chain claim solutions. Found, for example, launched earlier this year, while the co-founders of collapsed hedge fund Three Arrows Capital (3AC) launched claims trading platform OpenExchange in April.

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