Non-fungible tokens (NFTs) have skyrocketed in popularity over the past few years, with some NFTs selling for millions. Many NFT holders, however, may prefer to refrain from parting with their valuable holdings in exchange for immediate cash.
NFT lending platforms aim to make it possible for NFT holders to secure loans with their NFT holdings. This blog will go over the different kinds of NFT lending and borrowing platforms, as well as the features they must have to be successful so that you can create your own.
This article will equip you with the knowledge and skills to succeed in NFT loan platform development, whether you are a borrower looking for liquidity or a lender trying to make interest on your money.
NFTfi – Real-time P2P NFT lending platform representation
To borrow funds using their NFTs as collateral, NFT owners can take advantage of a decentralized NFT lending platform. Unique digital assets, such as works of art or digital real estate, can be represented by non-fungible tokens or NFTs. Using their NFTs as collateral, borrowers can access funds without selling their most valuable possessions. Peer-to-Peer (P2P) NFT Lending, Peer-to-Protocol (P2P) NFT Lending, NFT Rentals, and Non-Fungible Debt Positions are the four main categories of NFT Lending platforms.
Online Marketplace for Individual Loans (P2P)
P2P NFT Lending operates in a manner analogous to conventional lending. Without needing a third party to mediate the transaction, P2P NFT Lending platform users can lend and borrow NFTs directly to one another. Lenders and borrowers get more autonomy and choice with this method since they can set their terms and negotiate with one another directly. However, there is an increased danger because only some entities can resolve conflicts or enforce agreements.
This method is similar to the standard method of matching borrowers with lenders. In this paradigm, a user’s NFT can be used as collateral for a loan, with the loan amount based on the NFT marketplace price. They will get loan offers from prospective borrowers, and if they agree, the user’s Bitcoin will be transferred from their wallet to their own. The NFT will be transferred to a digital wallet, where it will remain safely throughout the loan’s duration. You must repay the loan in full by the end of the loan period to get your NFT back into your wallet. In the event of a default, the NFT will be transferred to the lender at a steep discount. The good news is that the loan terms will remain unchanged regardless of what happens to the floor price. P2P NFT lending platforms like NFTfi, Arcade, and Blend are increasingly common.
An illustration of the P2P NFT lending platform NFTfi in real-time
The launch of NFTfi in May 2020 predates the most recent NFT boom market. It quickly became the standard P2P protocol for NFT lending and borrowing.
Lenders on NFTfi are typically divided into three groups: those looking to acquire, those looking to make a profit, and those looking to lend money safely to friends and family.
- The first method is lending money to people hoping to receive money back. Some borrowers could see it as a viable alternative to Uniswap’s liquidity providers. The average APR for a loan on NFTfi is in the 40-100% range.
- The other strategy is acquiring NFTs from the few repurposed collectors at a discount. Users have an advantage over conventional banks and loan companies with this tactic. In exchange for the ability to take back the asset in the event of a default, they are willing to settle for a lower interest rate. Using this strategy, borrowers can place bids on secured loans with interest rates anywhere from 10% to 40% annual percentage rate (APY).
- This is to avoid unexpected and perhaps disastrous outcomes, lenders lend to friends transparently and verifiably.
According to NFTfi’s data, borrowers are more likely to hold onto their blue chip NFTs than to stop making loan payments. Across all NFTfi protocols, the average loan default rate is 9.7 percent. The lowest loan default percentages are found in the BAYC and CryptoPunks NFT collections, which feature large loan quantities. The loan default rate for Azuki is 42%, the highest of any blue chip.
Using NFTs as collateral for a loan in the crypto industry has several benefits, including adaptability, ease of use, and safety. The primary advantage of NFT lending platforms is that they are designed to be decentralized, which helps to reduce fraud and ensures the security of transactions.
Using NFTs as collateral assets provides a new source of liquidity for NFT owners, and the use of smart contracts helps to automate the lending process, making it more efficient and speedier.
Finally, NFT lending platforms offer a novel option for people who want to gain access to liquid or investable NFT assets by borrowing against them. Their decentralized, automated, and safe nature allows them to offer perks unavailable on more conventional loan marketplaces. Collectors, gamers, real estate investors, and NFT speculators should consider incorporating NFT lending platforms into their portfolios.