NFTs, in general, are a little hard to follow. Still widely misunderstood by many, non-fungible tokens are often branded as faddy digital trinkets with no real value or longevity. Despite the naysayers, the industry has eclipsed all expectations to reach an eight-figure market cap- not bad for funny money, right?
One of the latest extensions bringing NFTs ever more central in modern financial workings is NFT lending. If you don’t know much about it, you are not alone. Until recently, it was a realm reserved for the very select view, but new platforms are driving things forward.
NFTfi is one such platform- and it believes that significant growth is not only possible in theory but is on the horizon. Here is all you need to know about the company, NFT lending, and what their futures may hold.
What Is NFT Lending?
The idea of NFT lending is to allow an NFT’s owner to leverage it as collateral to secure a cash loan. NFT value is not liquid and is therefore not all that useful for anyone looking for spendable capital. It is, however, handy as a bargaining chip to acquire the liquidity you need.
Say you own an NFT with an estimated value of around $1000. You can leverage it through a relevant platform in exchange for a loan. Failure to pay it back under the agreed terms, ownership of said NFT transfers to the lender.
According to market data from NFTfi, Art Blocks, CryptoPunks, and Bored Apes Yacht Club are amongst the most common NFTs used in the lending market, mainly because of their high values and extremely attractive collectability.
The Development So Far
At first, NFT lending was restricted to private agreements between high-rolling collectors and powerhouses with plenty of capital and collateral to spare. It wasn’t until earlier this year when DeFi marketplace, Arcade, launched a platform for NFT-backed lending. Although the company had already been in existence since 2020, it had previously been exclusive to big-money players.
Since the end of January, Arcade has facilitated loans between lenders and borrowers entirely based on NFT values. The size of these deals varies from low-level novice loans to some fairly significant net-worth loans.
NFTfi is one of many similar companies that has helped to bring NFT lending out of the theoretical to the possible, but the industry as a whole is still in its infancy.
Alongside Arcade, NFTfi is a leading name in the young but growing lending world. It markets itself as a safe, secure, and anonymous place for borrowers to access fast liquidity and lender to access good opportunities: both in terms of yield potential and the possibility of nabbing some pretty sought-after crypto assets at a major discount should their load default.
It works by offering a space for anyone looking to borrow money to share their NFTs as collateral. Lenders can then make offers directly to the person. Terms are agreed upon between the two parties, so no set standards must be followed. Everything is in the hand of the lender and the borrower.
A smart contract escrow then stores and protects the NFT until the loan is repaid in full or defaults. Until then, neither contract can access or do anything with the asset.
NFTfi’s Opinion about the Future of NFT Lending
According to the platform’s founder and CEO, Stephen Young, the site has already made thousands of deals possible and believes that the numbers are only going to rise. Because of the direction, the NFT industry is moving in, more people are looking at the loan potential of their assets than the possible sale price.
Rather than holding on to an NFT or waiting for someone to buy it, owners can access money fast without letting go of their assets. As long as the terms are met and the loan repaid, the person can get the liquidity they need and keep their high-value NFT.
Although CryptoPunks and the likes are the headline writers- with many loans worth millions of dollars passing through the platform- small-scale lending is also on the up and up. This is where NFTfi sees the most growth potential, especially after its latest update that enhances peer-to-peer communication.
Whatever your take is on NFTs, there is no denying that using them as bargaining chips to secure liquid funds is an intriguing idea. If NFTfi is correct, we could be seeing a lot more of it in times to come.