Gabe Frank on Arcade's NFT marketplace and liquidity

0:01i'm ashton addison from block west capital for investmentpitch media in the Crypto Coin Show and today on blockchain interviews we have gabe frank ceo and co-founder of arcade gabe welcome to the show and thank you for taking the time yeah good to be here thanks ashton you're welcome let's dive right into the world of nfts there's so much that can be done with nfts that a lot of people

0:24don't realize yet and there aren't really the platforms to capitalize in different ways on your nfts for the mainstream yet but i know arcade is working on some great things and i would love to kick off our conversation by hearing a little bit about arcade and pawn protocol and then we can dive into the details for sure so at arcade we're building

0:45Nft financialization infrastructure and so about a year and a half ago as nft market cap started to grow into the billions we figured that credit markets would also form on this sort of new asset class and so we're tackling the problems of a few things in the nft space one is enabling price discovery and another is secondary liquidity on nfts

1:10so arcade is a peer-to-peer marketplace decentralized using smart contracts on the ethereum blockchain and bars can take out loans against their nfts backed by their nfts and lenders can can participate in a new source of defy yield by lending against these assets arcade is also a heavily

1:36data science oriented so we have a data science team that works on models to actually value the assets and appraise the assets and help counterparties kind of come to terms on these loans great and great background and yeah definitely two big problems in nfts right now and you mentioned their price discovery and secondary liquidity of course you know

2:02i've even myself i was looking at some nfts and some of my friends were warning me oh make sure you know about the liquidity like are you going to be able to sell this are you going to be able to sell it at the top you know even smaller chance but let's just start by diving into that a little bit more with the price discovery you mentioned there you have experts

2:21working on it can you talk about that problem of price discovery and nfts where it's at and more specific on the solutions from arcade yeah sure so nfts are pretty much illiquid assets some collections have you know secondary transactions like punks and apes and quite a quite a bit of volume also you know high market cap artists like pack and people and

2:48and fusions that are kind of highly in demand and even go through chrissy's auction house and southern east auction house these mainstream kind of large large businesses and so our kind of target market is sort of the high value high net worth collector that has you know 10 20 sometimes 100 billion and assets locked up in nfts and very similar to the traditional

3:16art market how collectors of picassos monets that are valued 100 200 million collectors take out loans on those assets for capital efficiency to use you know as investment also in their businesses to take out and then put in their you know their entrepreneurs they put them put the funds back in and their businesses so we figured the same sort of model would

3:41form in nfts and a lot of the loans that have gone through the platform have been sort that those long tail assets high value nfts definitely and yeah good to always reiterate you know to people that are new to the space about liquidity and you know how easy it is to sell you know it's easy to buy when it's sitting there but you know

4:05actually turning a profit on it if that's the goal or holding on to it you have to know how easy it is to sell and there are a lot of marketplaces that are popping up but i know that arcades underlying technology is a part of this pawn protocol maybe you can talk about that a little bit and what are the advantages in having that in arcade yeah sure so pawn protocol is an

4:26in-house built a smart contract that basically enables escrow and loan settlement of nfts so the contracts were built by very experienced blockchain and solidity developers a lot of these guys i worked with in the past and my former companies and basically we got together and we wrote a spec doc of how the protocol would work

4:53and how the contracts would govern the life cycle of the loan my background is in pawn shops so before i got professionally in the space in crypto i was part of a family business in texas that my dad managed a chain of storefront pawn shops and so when we first kind of wrote the contracts it was a lot similar to the pond model where the pawn shop takes custody of an asset

5:17and gives the bar you know liquidity and so that was the impetus for the name to be the pawn protocol very cool and i really like that backstory and how it now ties into blockchain and digital and expanding it to a global marketplace very cool gabe and how long now have you been working on arcade and pawn protocol and where is it at today yeah we've been working on it for

5:43about a year and a half now so when we started working on the protocol the market caps of nfts were a lot a lot lower so since we started a year and a half ago the market's grown 200x and we raised the seed round in april last year when it was just my co-founder nine and a few guys we were working with and we raised 2.7 million

6:10and from there we shipped the smart contract about four months later and have been in a private release since that time and getting ready to launch in a public to the public later this month but so far in this private lease just working with a few counterparties on the lending side and then collectors on the borrower side we've done about five million of loan volume

6:34with long tail assets like the punx apes and some one-on-one artists but yeah so we've seen collectors get comfortable with us with the protocol it's audited and sort of battle tested now with high value assets being escrowed and we've grown the team to about 13 full-time data scientists engineers and we just wrapped up an a-round so we

7:01raised 15 million with some really good investors that you know we think a lot of value great to hear and congratulations on that and keeping up with the growth of the industry because as you said 200x in a year is incredible and now with the launch moving to the next stage of the platform i'm curious you know we talked about you mentioned high net worth individuals

7:28being able to get loans for their for their nfts and a lot of the marketplaces that we're seeing pop up are you know you know open c obviously is dominating with the volume and the amount of revenue that they're generating and people are trying to make more decentralized versions of that are more owned and accessible by everybody as well is the arcade marketplace

7:51specifically designed for these high net worth individuals and not really for you know everyday nft people or does the marketplace sort of include a multiple variety of customers yeah today you know we operate an otc desk and it's really a white glove service to help these high net worth sort of d5 power users that are used to using smart contracts and comfortable with it

8:14so it is pretty niche today the most of the value to nfts is tied up in long tail assets so that's kind of our target market and niche there but as we go public we think we'll start to see smaller smaller loans on a wide variety of assets not just the punks and the apes and kind of the og blue chip collections

8:41but today it's it's it's really the high net worth collectors definitely yeah and there's there's definitely a need for that and now with the platform i'm curious as well is there a cryptocurrency that's integrated into the platform and if so how does that work and does it create a sustainable environment yeah today we don't have a token whether we're gonna have one in the

9:06future is sort of yet to be seen but we are building web3 and we know how the importance of community and community owned governance of these protocols so it's not out of the question definitely so today it's just pure utility for both counterparties you know needing or wanting loans for capital efficiency or to our rates and d5 so get a loan on your ft

9:35for a certain rate and then stick it back into these yielding protocols where you can earn basically more money definitely and with the pawn protocol and you mentioned the white glove service have an otc desk to work directly with these investors is the protocol you know when i hear working directly sort of i think about centralization versus decentralization and i'm curious if you

10:01have a thesis on the pro underlying protocol and whether it needs to be a certain amount of decentralized or just controlled by the contracts and have the founding team and executives not be able to change or move the protocol what's your thesis on that yeah i mean we're focused on decentralization of course all the protocols self-service so somebody

10:26you know they don't have to go through otc desk they can just go to the marketplace and hope that the loan gets filled now some of our roadmap items are moving more towards smart contract governance which would work require require our own token and you know getting into some of the different loan products right now the marketplace is peer-to-peer but we

10:53are working on peer-to-peer models that would be similar more to like an ave compound experience and that's where we can get into more of a governance style where the community is either setting ltvs loan to value ratios rates on certain collections so today you know it is sort of meat space and decentralization and i think that business will always

11:23be there so a lot of the guys on our team have a trad five background trading background come from the crypto custody space as well so there's always going to be a need for that white glove service but we are extremely focused on decentralization open source and moving more towards you know community governance that's great to know and i'm curious with the loans

11:48themselves in the protocol perhaps it depends on the liquidity or the type of nft but with a lot of these say that they're not that liquid what is the collateralization like for putting up an nft you know do you get 80 percent or are you getting 120 yeah it depends on what collection the nfts are part of so for example punks usually you can get

12:16higher ltv on punks because they're a little bit more liquid and they're they're highly in demand so lenders are comfortable with that risk so ltvs will go up we'll see 50 sometimes up to 70 percent of floor price or of the valuation that we put on the assets other nfts like 101 our pieces are of course more liquid so the ltvs will be much lower on those you

12:43know 20 30 and depending on the collection also the rates will vary and that depends on what the ltp also is so a lot of variables and amazing well thank you for letting me know about that and you know you talked a little bit about you know where the next stages for the marketplace and the platform and i'd love to know you know if you

13:07have any other plans for 2022 and where you see arcade by the end of this year yeah sure so we're going to build out different loan products all on chain so building an installment type product that will allow for longer duration loans where users can pay back interest only or principal plus interest and just giving lenders and counterparties more flexibility and what

13:31they can do with the protocol now our vpa protocol kevin kenneth he just developed what's called a flash loan rollover and so basically that allows borrowers in these term loans because the loans today in the marketplace are term loans which just means like usually it's a three-month term where the borrower has to lumps has to pay back and lump sum at the end

13:58principal plus interest so this flash loan rollover is pretty innovative because it allows a borrower to take to take out a loan maybe their yield farming and a different protocol and they can actually pay off a loan in the same block using an ave flash loan and just service the debt and pay the interest while keeping their funds still working so

14:20we're baking that into the protocol in the ui the other things on the roadmap are our peer-to-peer model so the more of a compound experience where it works sort of like a revolving line of credit users can take liquidity up to the certain value of the assets what the pool basically sets and that's going to allow much more flexibility we'll bake in also

14:46default mechanisms that liquidate the asset or that the pool wants to stick it in there on their balance sheets other than that you know we have a big we're ingesting a lot of data so we look at all event log data from the secondary marketplaces and the blockchain to come up with appraisals and valuations so a lot of that data can be used in-house for possibly principal

15:08lending on our side and also you know either resold or given as an oracle on chain to other projects that are also getting into nft trading or nft lending going further you know we are since we basically allow users to see all their nfts in their wallet on the ui similar to opencv which openc is really the de facto gallery for a lot of these users

15:36because they can just log on and see all their assets and then that's what people like so we're going to have the same thing it's going to be a place for users to look at all their assets and you know could start working on buy sell marketplaces different options different auction mechanisms and yeah amazing all of it sounds great i'm really

15:58excited for the flash loan and the automation overall just making it easier and bringing more liquidity so thank you so much for putting this all together gabe for the viewers that are looking to learn more about arcade follow along and join in the communities what is the best way for them to get involved yeah we have a pretty active discord an arcade discord we're also on

16:19twitter arcade.xy and i'm i'm on twitter also stanley prep and most of the team is on twitter as well we have a telegram chat as well so different channels it's pretty easy for somebody to get in contact with the team or with myself yeah awesome thank you so much gabe i will leave your twitter the discord everything in the description box below

16:46as well all the best with arcade throughout this year and let's follow up in the near future awesome thanks ashton