What happens when you need cash but do not have it? You either use your credit card or apply for a loan. Credit cards and loans are two of the most common means of accessing vital funds. However, in the crypto space, one of the most popular means of accessing funds is through NFT lending. Most people erroneously believe that NFT lending involves lending or giving out Non-Fungible Tokens, but this is not the case. In this article, we shall examine the concept of NFT lending, its merits and demerits, and some of the top NFT lending platforms.
What is NFT Lending?
NFT lending involves lending crypto or fiat to a borrower who offers an NFT as collateral against the loan you are proving in fiat or crypto. NFT lending and borrowing work the same way as conventional lending and borrowing, the only difference is that Non-Fungible Tokens are used as collateral. The borrower offers their NFT collateral and in return, they will receive a loan from the lender. The first step in NFT lending is for the borrower to locate a willing lender. Once they agree to a deal, the borrower transfers their NFTs to a smart contract built by the lender. The smart contract issues the loan according to the value of the NFTs. However, should the borrower default in repaying the loan, the smart contract automatically sells their NFTs and uses the proceeds to repay the lender. The borrower also loses any ownership rights they may have over the NFTs
Top NFT Lending Platforms
Here are some of the top NFT lending platforms you can explore:
BendDAO is a liquidity mechanism and the first decentralized liquidity mechanism functioning as peer-to-pool. The platform allows NFT holders to obtain ETH loans by keeping their assets as collateral on BendDAO. In other words, customers can access ETH loans on BendDAO by depositing their non-fungible currencies as securities. BendDAO supports various popular NFT projects, including BAYC, CryptoPunks, MAYC, and Azuki. If the borrower defaults on the loan, BendDAO offers up their NFTs for auction; however, potential bidders must start at 95% of the NFT’s value based on the collection’s present floor price.
Founded in 2020 by Stephen Young, NFTfi is a decentralized platform for lending and borrowing ETH and the DAI stablecoin. The platform accepts NFTs as collateral, meaning you can utilize digital crypto art purchased from OpenSea, SuperRare, Axie Infinity, etc., as collateral. Lenders can evaluate loan requests listed on the platform and select which to offer loans, just like online shopping. NFTfi does not charge borrowing fees; however, you will be required to pay interest on your NFT loans. NFTfi charges 5% on the interest earned by lenders, and lenders are free to determine their interest rates. Once the borrower accepts the loan proposal, the NFTs will be locked in a smart contract until the loan is fulfilled. Should the borrower default on the loan, the lender can choose to foreclose and receive their NFTs.
X2Y2 is an emerging NFT marketplace that allows borrowers to access loans at no cost. The platform employs the peer-to-peer mechanism to offer borrowers ETHs in return for Non-Fungible Tokens. Once an agreement is reached, the NFTs are locked on the platform until the fulfillment of the loan terms. Unlike other NFT lending platforms that allow lenders to only bid using different accounts, X2Y2 allows lenders to entertain various loan offers to better utilize their ETH. The platform only accepts NFTs that are not flagged as stolen on any marketplace as security. Some of the current whitelisted NFT collections include blue chips like Azuki, BAYC, Moonbirds, and MAYC.
JPEG’d is a decentralized lending protocol built on the Ethereum blockchain that allows NFT holders to open collateralized debt positions using NFTs as security or collateral. Participants leverage their NFTs by minting PUSd, the native stablecoin of the platform. JPEG’d is a fully decentralized and permissionless platform, seeking to bridge the gap between NFTs and DeFi. The platform only accepts as collateral, NFTs obtained from specific collections, including CryptoPunk, BAYC, and EtherRock. The value of an NFT is determined by its floor price; however, distinct NFTs with special value are priced individually. JPEG’d allows participants to borrow up to 32% of their collateral value. However, JPEG’d has a maximum loan disbursement threshold for certain NFT collections and once the threshold is reached, participants will be unable to borrow more. As a highly volatile asset lending protocol, JPEG’d also offers insurance coverage to customers for their loans.
NFT lending is an innovative and emerging technology within the DeFi and NFT sphere. The prime aim of the practice is to boost the liquidity of NFTs, providing participants access to capital to spend on projects and services. It also provides exciting revenues for lenders. Interested participants can take advantage of any of the top NFT lending platforms mentioned above!
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