January 18, 2023
By Murtuza Merchant
Non-Fungible Tokens (NFTs) are unique digital assets that have been gaining a lot of attention in the crypto and blockchain space.
They represent ownership of a wide range of items, such as digital art, collectibles, and real estate.
However, the NFT market is not as liquid as the crypto market, and it can take some time for NFT holders to find a buyer for their NFTs.
This is where NFT lending comes in – it combines the benefits of NFTs with those of DeFi (decentralized finance) to provide a solution to the liquidity problem.
NFT lending allows NFT holders to borrow money by using their NFTs as collateral. The borrower pledges their NFT to the lender, who in return grants them a loan and charges interest.
The NFT remains in the lender’s possession during the loan period, and if the borrower is unable to repay the loan, the lender acquires the NFT as collateral. This allows NFT holders to access cash quickly, without having to sell their NFTs.
There are several different models for NFT lending, each with its own advantages and disadvantages. Peer-to-peer NFT lending, for example, operates similarly to traditional crypto loans, with transactions taking place directly between the parties.
Peer-to-protocol NFT lending, on the other hand, is similar to DeFi lending protocols, where borrowers borrow directly from lenders and deposit coins into pools.
Collateralized debt position lending is another model, similar to MakerDAO, where borrowers must lock NFT assets to be eligible for synthetic stablecoin loans. NFT Rentals are also a model, where renters and tenants can choose from a variety of rental terms and conditions in a permissionless market.
One of the key advantages of NFT lending is that it allows NFT holders to access cash without having to sell their NFTs. Additionally, it can occasionally be difficult for investors to get quick access to liquid funds if they have substantial investment allocations tied up in NFTs.
Furthermore, loans give NFT owners a way to create money that is not subject to taxes, as opposed to the tax consequences of a sale.
Furthermore, NFT lending is also becoming increasingly popular among brands and institutions, as they recognize its potential and are integrating it into their systems. This is why the rate of adoption is soaring and NFT lending is gradually becoming the talk of the town.
With the NFT market still in its infancy, it’s hard to predict the future of NFT lending. However, it is clear that it has the potential to greatly benefit the NFT market by increasing liquidity and providing a way for NFT holders to access cash without having to sell their NFTs.
In addition, the integration of NFT lending with DeFi protocols may also lead to the development of new financial instruments and services. This is why many experts are bullish on the future of NFT lending, and it is expected to be a key driver in the growth of the NFT market in the future.
About the author
Murtuza Merchant is a senior journalist and an avid follower of blockchain and cryptocurrencies.