Cryptocurrency exchange Kraken is developing a way for people to use nonfungible tokens as collateral for loans, the exchange’s founder and Chief Executive Jesse Powel told Bloomberg News on Friday in an interview.

NFTs are blockchain-based technology that allows people to buy, sell and trade digital assets such as art, music and video game items, with provable ownership. That has led to the rise of marketplaces where users trade in these digital assets and a growing sales volume that has hit $270 million over the past week, according to Nonfungible.com.

Powell told Bloomberg that with the upcoming service on Kraken, users would be able to use NFTs as collateral to borrow against. For example, if a person deposited a CryptoPunk from Larva Labs, a piece of artwork displaying a “punk” figure from a popular limited collection, she could borrow against it. Some “Punks” range in worth from $30,000 to $10 million in the Ethereum cryptocurrency.

Although most NFTs don’t trade for that much on the market, the average NFT trade for 2021 has been around $1,000.

“If you deposit a CryptoPunk on Kraken, we want to be able to reflect the value of that in your account,” Powell said. “And if you want to borrow funds against that,” he added, you can.

In order to support this new marketplace, Kraken would come up with its own method for the valuation of NFTs deposited into its system. After that, users would be able to borrow against that value.

Powell said that he believes this will be the year that NFTs finally hit mainstream. He explained that the crypto ecosystem has seen numerous new participants, including retail investors and corporate brands, who have been introduced to cryptocurrency through NFTs.

One prime example of how brands have used NFTs is NBA Top Shots, which allows users to buy, sell and trade officially licensed National Basketball Association collectible “shots” of players in action. Collectors can buy them in packs, like trading cards, as low as $9. This gives fans of the NBA a chance to enjoy and trade short video clips of their favorite players like trading cards and make money with digital assets.

“Phase one [of NFTs] was speculation, phase two is buying art and supporting artists,” Powell said. “Phase three is going to be functional uses of NFTs.”

Numerous other large crypto exchanges have already launched their own NFT marketplaces, including Binance and FTX. Coinbase and Blockchain.com both have also opened waitlists for upcoming beta services attracting millions of signups. The market is also saturated with NFT-only marketplaces such as OpenSea, Rarible and Mintable, although none of them provides custody for assets.

Other projects that provide NFT collateral-backed loans include the decentralized finance project NFTfi, crypto lender Nexo and Arcade, which raised $15 million earlier this month.

Photo: Kraken