Galaxy Digital, led by Michael Novogratz, and Animoca Brands co-founder Yat Siu have taken a unique approach to collateralizing a multimillion-dollar loan by tokenizing a Stradivarius violin from 1708.
On June 4, Galaxy provided Siu with an undisclosed amount of funds, using the 316-year-old violin as collateral. To facilitate this, the digital assets firm transformed the violin into a nonfungible token (NFT) and will retain both the NFT and the physical instrument until Siu repays the loan.
Although the exact loan amount remains undisclosed, both Galaxy and Siu confirmed that it is in the millions. A Hong Kong-based custodian will safeguard the violin until both parties consent to its release.
The Stradivarius violin in question has a rich history, having once belonged to Empress Catherine the Great of Russia. Tarisio, a well-known musical instrument auction house, has thoroughly documented the provenance of the violin, tracing its origins back over 300 years.
According to Tarisio, the Russian ambassador to Venice acquired the violin for Empress Elisabeth Petrovna, who ruled the Russian Empire from 1741 to 1762. After her death, the violin passed on to Catherine II, also known as Catherine the Great.
Siu acquired the violin in 2023 through an auction, paying over $9 million for it.
Galaxy’s vice president of tokenization, Thomas Cowan, believes that tokenizing physical assets could revolutionize the landscape of crypto lending. Traditionally, collateral tied to digital assets like Bitcoin (BTC) or Ether (ETH) is set at a high value due to their volatility. However, by tokenizing physical assets, such as the Stradivarius violin, lenders like Galaxy can provide higher loan amounts to clients.
Cowan stated in a Bloomberg interview that while the current example is a violin, he envisions this concept extending to other assets like real estate in the future.
While NFTs have been widely used in the tokenization of physical assets, the sales volume of digital collectibles has recently experienced a decline. In May, CryptoSlam reported a 54% drop in NFT sales volume compared to the previous month. In April 2024, NFT sales reached over $1 billion, but in May, the figure plummeted to $624 million. Notably, leading NFT blockchains, including Bitcoin, Ethereum, and Solana, all witnessed a significant decrease in sales.
Overall, the ability to tokenize physical assets for lending purposes presents a new avenue for the crypto industry, with the potential for broader applications in the future.