37. What is NFT Lending all about? An innovative solution in the world of cryptocurrencies!
NFT (Non-Fungible Token) is a term that has revolutionised the world of cryptocurrencies and digital assets. However, when we think of NFT, we most often think of collectible works of art, unique digital objects or amazing gaming applications.
But did you know that there is also NFT Lending, which is the ability to make money on NFTs that do not belong to you? In this article, we take a look at what NFT Lending is all about, how it works and why you should consider this innovative solution in your investment strategy!
What is NFT Lending?
NFT Lending, also known as NFT Lending, is the process of making one’s NFT available to other users in exchange for a set fee or percentage of profit. In short, NFT owners can make their digital assets available to other people who can use them in specific ways, such as using them in games, art projects or collecting them. In return, the NFT owner receives a fee for lending their asset.
Throughout the structure, there are four ways of borrowing NFT:
- Peer-to-peer type.
- NFT peer-to-protocol lending.
- Non-exchangeable debt items.
- Lending NFTs.
Peer-to-Peer lending brings lenders and borrowers together in the classic way. Here, the user can list their NFT as collateral for a given loan and assess its value based on market value. Once the lender and borrower have accepted the transaction, the NFT will automatically be transferred to the digital vault for the duration of the loan. When the term of the loan is over, the loan must be repaid, at which point the NFT will go back into our wallet. In the event that the borrower defaults, the lender will receive the NFT for ownership at a discounted market price.
Some of the popular Peer-to-Peer lending platforms NFT are: NFTfi, Arcade and Blend.
Peer-to-protocol lending is very similar to Peer-to-Peer lending. The only difference is that in this case users borrow NFT from a liquidity pool rather than from a single borrower. The pool here acts as a centralised market maker, which is the one doing the lending on behalf of others.
When borrowers wish to borrow from the pool, they enter into an intelligent contract with the pool. If the borrower fails to repay the loan taken out, NFT is quoted by the pool.
Lending NFT also works very similarly to Peer-to-Peer lending. However, such services are usually for those who want to rent their NFT to others. You may ask yourself one question here – why do others want to rent out their NFT? Well, it may be because a given non-exchangeable token may have some unique characteristics. For example – if a given NFT provides entry to a certain concert, and its owner is busy that day, then he can rent it to others. He sets the price and rental time. The hirer applies, pays the price and receives the given NFT for a given period of time. At the end of the given period, smart contracts return the data NFT to its owner.
Non-exchangeable debt positions, on the other hand, are very specific. In this case, the protocol offers stablecoins in exchange for secured NFT. In practice, this means that owners lock up their NFT in MarkerDAO and receive loans in stablecoin DAI.
Of course, all conditions for the release of DAI are included in the smart contract. In this case, the assets of NFT must be worth 150% of the value of the loan. If their value falls below 150%, the loan immediately becomes unsecured and the borrower incurs a liquidation penalty of 13% and a stability fee.
Why should you be interested in NFT Lending?
That’s because these loans offer a number of benefits, both for NFT owners and those lending their NFT. Let’s look at some of the reasons why you should consider participating in this market:
- NFT Lending is a great way to generate passive income. By making your NFT available to others, we can make money from it!
- We increase the usefulness of a given NFT. Why should it lie around and get dusty when it could be useful to someone else?
- NFT Lending is a great way to diversify your portfolio. It allows you to expand your collection of non-convertible tokens.
- Sharing your NFT is also a great way to build community. It also helps to gain new followers for your NFT.
- NFT Lending is an innovation in cryptocurrencies. It brings new possibilities for the use of non-exchangeable tokens.
NFT lending platforms
Interestingly, despite NFT Lending being a relatively young sector in the cryptocurrency industry, it already has several reputable service providers.
- NFTfi. The platform allows users to use both peer-to-peer and peer-to-protocol models for lending when securing their loans. This is where borrowers can align themselves with the people they want to lend to, as well as align themselves with the liquidity pool.
- Arcade. Another NFT Lending platform worth looking at. It uses a peer-to-peer model. The platform works like a loan marketplace that automatically matches lenders with borrowers. Each loan taken out on the Arcade platform is processed through the chain and assets are secured and held in escrow until the terms of the smart contract are fulfilled.
- Nexo. One of the largest lending protocols NFT in decentralised finance (DeFi). Interestingly, it was on this platform that the loans were secured by two CryptoPunks!
Summary
NFT Lending is a fascinating solution that allows you to use the potential of your NFT to generate income. For NFT owners, it can be a way to monetise their assets that would otherwise remain idle. For users renting NFTs, it is an opportunity to access unique digital assets that would otherwise be out of their reach.
NFT Lending is the next step in the evolution of the cryptocurrency and digital asset market, which could open up new opportunities for collectors and investors alike.