Novicap Launches CryptoKitties Finance Product

LONDON, April 1, 2021 - Novicap, the London-headquartered FinTech, has announced today the release of a novel crypto finance product focused on CryptoKitties and other Non-Fungible Tokens (“NFTs”).

NFTs

For the uninitiated, unlike cryptocurrencies such as Bitcoin, NFTs are unique digital assets and accrue value independently, mainly driven by scarcity. A unique bit of code labels every NFT and is stored on a blockchain, the distributed ledger system that also powers cryptocurrencies. Examples of NFTs are Crypto Art, CryptoPunks, and, most notably, CryptoKitties.

It’s up to history to tell whether NFTs are redefining the concept of ownership in the digital age. What is clear, however, is that NFTs have become new and fashionable must haves for the (techno) elite. For many, NFTs are, quite possibly, becoming their biggest line item expense behind lattes, Patagonia vests, and Teslas. During the last month, NFTs accounted for $269 million in trading volume.

A Crypto Manhattan Project

Novicap has always been at the forefront of financial innovation and developed a crypto strategy following the advice of Venture Capitalists.

Novicap CEO Federico Travella recalls, “Last year - and a different era - ago, I was sipping lattes with a Venture Capitalist, before the Great Quarantine. The investor advised me to develop a crypto product because we’d be able to demand a much richer valuation. When pressed about what exactly we should build, he remained a little vague. Nonetheless, I got back from the meeting totally pumped and knew Novicap needed a Crypto Manhattan Project.”

Hackathon

Novicap’s crypto finance product, like so many inventions in tech, was inspired by a so-called hackathon, the sort of nocturnal ritual that gathers geeks with a serious vitamin D deficiency.

Travella remembers the night (although vaguely), “We started with handing out branded T-shirts featuring the slogan “Crypto = 10X valuation” and got cracking to develop a crypto product. At first, I wasn’t sure this was going anywhere but then a lot became clearer as the night progressed. It was a productive night.”

Novicap’s technical lead continues the story, “The big break-through was somewhere past midnight, when most were beyond their Ballmer Peak and the pretense of innovation was wearing a little thin. I was admiring one of our whiteboards that looked like someone tried to stuff firecrackers into a cat and realized a CryptoKitties finance product could be the next big thing. The other highlight of the night was that some lost soul dialed 911 and, till today, claims he heard the voice on the other end ask, “What pizza would you like to order?” But I digress.”

The CryptoKitties Use Case

Suppose you’re already sitting on a couple of millions worth of CryptoKitties and you need financing to expand your collection of, say, CryptoPunks. It’d be pretty damn inconvenient if you’d need to sell off those Kitties to buy some Punks. They’re too cute to let go.

This is where Novicap’s solution kicks in: like taking a mortgage on one of your Monopoly properties to build your first hotel, Novicap allows you to draw down funding against your CryptoKitties.

Novicap shortlisted CryptoKitties as its first NFT for a very specific reason: they breed.

A Novel Underwriting Method

In crypto land, underwriting is a different story. The so-called LTV or Loan-To-Value is a lot harder to establish when the asset value fluctuates like a yoyo. How does Novicap ascertain it’s not financing the wrong type of kitty that appears some distressed asset that only trades by fat finger error - you know, the type of kitty that will totally rack your sofa?

While remaining highly secretive, Novicap’s head of risk lifted the skirt (a bit), “We applied novel AI and machine learning methods to underwrite CryptoKitties. But then we wondered why we should limit ourselves to financing only existing kitties? So the key nut to crack became the breeding, or future cash flows the CryptoKitties could generate. For that part, our risk team deserves the Nobel Prize in economics.”

“The breeding,” Travella noted, “is similar to what an upstart recently intended with discounting future accounts receivables in the metallurgic sector, admittedly with mixed success.”

Unprecedented Investor Demand

In order to finance the CryptoKitties, Novicap has structured a new crypto fund with the help of a leading Swiss bank and started marketing the new asset class to institutional investors.

Travella commented on the progress, “So far, investors are cheering like it's New Year’s Eve and consider the investment opportunity an absolute godsend in times of negative interest rates. Many kitties have a clear investment grade rating and yield 200 bps above comparable securities, however we’re also seeing demand for the sub-investment grade ones. For the latter we may apply credit enhancement, in the form of credit insurance, so investors can safely tick the ‘investment grade’ box.”

“We’re on a steep learning curve to figure out how to finance other NFTs such as football players. We’re just not sure how they’ll breed,” Travella concluded.