After the explosive growth of NFTs in 2021, the NFT market has grown beyond the launch of mere profile picture collections. Lending NFTs is a new innovation in the NFT space, with different NFT lending platforms and ways to earn yield with NFTs.
NFT Lending Platforms help you collateralize your NFTs and borrow against them. This article will explain what NFT lending is, NFT Lending Platforms, highlighting some of the best, NFT Benefits, and more!
NFT Lending Platforms: What is NFT Lending?
NFT lending is a type of loan in which NFTs are used as collateral and are stored on the smart contract. The concept was inspired by the inactivity of staked NFTs, which cannot be used to generate additional returns once staked.
NFT lending enables users to use NFTs as collateral for cryptocurrency or fiat money loans, while lenders can lend their money on the platforms and earn returns.
The loan conditions are the APR rate and the loan term. When the term is up, the borrower must repay the capital plus interest and have the locked NFTs returned. In the event of late payment, the locked NFTs will become an asset of the lender.
NFT Lending Platforms
NFT lending platforms provide a marketplace for both lenders and borrowers. NFT owners can borrow against their NFT as collateral, and lenders have the opportunity to earn a yield on someone else’s NFT and potentially buy it below market value. Some of the best NFT lending protocols include:
Arcade is a peer-to-peer NFT lending platform. Nexo Company lent 1,200 ETH worth US$ 3.3 million in May 2022 using 2 CryptoPunk Zombies as collateral, with a 60-day lending period and a 21% APR return.
NFT price movements, however, are determined by the floor price and the value of ETH. If the value of the NFTs is less than the value of the borrowed coins, lenders may be at a loss and unable to sell the NFTs at market value in the event of late payment.
As a result, Nexo Company has prepared for market volatility by contacting Meta4 Capital’s investment manager, who has offered to buy NFTs at specific prices because the firm believes the NFT market will be in a long-term bullish trend.
The concept of NFT lending stems from the DeFi protocol lending, in which NFT holders seek to increase their returns by using NFTs as collateral for crypto coin loans, while lenders profit from providing liquidity.
However, NFT lending can be risky if the collateral NFT’s value falls below the loan, in which case the lenders will lose money if the borrowers fail to pay on time. Lenders might be able to sell the NFTs to partners or firms at a specific price, but if there’s no offer, lenders can lose the opportunity to earn from selling the NFTs.
NETfi is a platform for peer-to-peer and peer-to-protocol NFT lending. NFT owners can access the vault’s liquidity and earn wETH and DAI by providing liquidity, also known as peer-to-peer lending. Furthermore, the liquidity providers will receive their returns, as will the NFTs in the event of late payment.
An NFT collector recently used 104 CryptoPunks as collateral for 8.3 million DAI loans, the most expensive collateral for NFT lending. MetaStreet, a lender platform, offered a 10% APR with a 90-day loan term. Aside from CryptoPunk, BAYC is another NFT project that has been used as collateral in over 95 loan contracts.
Drops, unlike NFTfi and Arcade, allow loans for NFTs and DeFi assets, allowing them to gain additional value. Lenders can fund liquidity pools with any asset using the Drops DAO.
Borrowers can leverage their idle DeFi assets and NFTs to obtain trustless loans and generate additional yield. In general, the community-based protocol allows a wide range of assets to act as collateral, from metaverse items to NFTs to DeFi assets.
NFTX creates liquid markets for illiquid assets such as NFTs. Users place NFTs in an NFTX vault and receive an ERC-20 token in exchange (aka vToken). This vToken entitles you to a random or specific NFT from the vault.
NFTX seeks to improve the distribution and price discovery processes for NFTs. NFTs are currently illiquid, and even valuable NFTs can be liquidated quickly if they are underpriced. Users can instantly access the liquidity of an NFT by selling the vToken on a DEX or staking their tokens to earn a yield on their NFT by depositing an NFT into an NFTX vault.
There is also the possibility of earning yield by owning a portion of an NFT. To earn an attractive yield, investors can purchase a fraction of a CryptoPunk and stake their claim in the Punk/ETH liquidity pool.
BendDAO is a platform for peer-to-peer NFT lending. Borrowers can borrow ETH in exchange for providing their NFTs as collateral to a liquidity pool. An NFT holder can receive a 30-40% loan by bundling their NFT into a separate token (called a “bound NFT”).
A 48-hour liquidation protection period protects NFT holders from sudden liquidation, while lenders have the security of having the NFT collateral locked in a smart contract. The floor price of the collection determines the collateral amount. As a result, unlike P2P lending marketplaces, even rare NFTs can only command 30-40% of the floor price.
BendDAO currently lists six active pools: Bored Ape YC, CryptoPunks, Mutant Ape YC, Azuki, Clone X, and Doodles. Borrowers can profit from collateralizing their NFTs by taking BEND liquidity mining rewards into account.
NFT Lending Platforms: NFT Benefits
If you’re looking to get into trading NFTs, it’s only natural to wonder what benefits these asset classes hold. Below are some of the top advantages of non-fungible tokens, which provide the foundation for their value.
The primary advantage of non-fungible tokens is the ability to prove ownership. Because NFTs operate on a blockchain network, they can aid in the assignment of ownership to a single account. Most importantly, NFTs are indivisible and cannot be shared by multiple owners. At the same time, the ownership advantages of NFTs protect buyers from concerns about counterfeit NFTs.
NFT detractors have openly stated that people could simply photograph NFTs and sell or give them away for free. You can, however, see an image of the NFT. However, it is critical to determine whether you own the asset. Downloading a photograph of a board ape from the Internet, for example, does not grant you ownership of the work.
The benefits of non-fungible tokens are largely dependent on their uniqueness. NFTs are created on the blockchain, implying that they are associated with unique records. NFTs’ distinct characteristics demonstrate their potential to add value. Simultaneously, NFT creators can choose to issue a limited number of NFTs in order to create a scarcity of supply.
Creators of some NFTs, such as tickets, have the option of creating multiple replicas. However, the immutability of the blockchain on which NFTs are stored ensures their authenticity. Immutability ensures that blockchain-based NFTs are immune to changes, removal, or replacement. Therefore, NFTs can easily showcase their authenticity as their most valuable quality.
The next obvious answer to the question “What is the benefit of NFTs?” is NFT transferability. NFTs can be freely traded on specific markets with a wide range of trading options. In the case of games, for example, NFTs could solve the ‘walled garden’ problem.
Many games provide in-game items, which players can purchase to enhance their gaming experience. However, the in-game items are limited to the environment of the games and cannot be used anywhere else. Furthermore, players may lose their investment in in-game collectibles or items if the game becomes obsolete.
In the case of NFTs, game developers could create NFTs of in-game items that players could keep in their digital wallets. Players could then use the in-game items outside of the game or even sell them for a profit. Because NFTs are based on smart contracts, incorporating the use of smart contracts makes ownership transfers simple. Ownership transfers can be completed upon the fulfillment of specific conditions outlined in smart contracts between the buyer and seller.
NFT Lending Platforms: What is the Best Wallet for NFT?
If you’re interested in collecting or investing in non-fungible tokens, you’ll need an NFT wallet. An NFT wallet is a cryptocurrency wallet that supports the blockchain protocol NFTs are built on. It also needs to support the currency you’ll buy NFTs with, such as ETH.
You can check out this great article on What is the Best Crypto Wallet for NFTS.
Since the vast majority of NFTs use the Ethereum blockchain, most Ethereum wallets will be compatible. Below are some of the top NFT wallets available right now.
- Trust wallet
- Math Wallet