What is NFT Lending?

Table of Contents

Do you know you can make money through NFTs without selling the ones you own? In this article I will be telling you all about NFT Lending, the types and platforms to lend NFTs.

What Is NFT Lending?

Although people make thousands and even millions of dollars through NFT, sometimes you’re not always that lucky and it could take months to sell an NFT. Unlike cryptocurrency, the NFT is far more illiquid.

NFT lending was brought about to not completely solve that problem, but rather to help in making money through NFTs in another way.

Types of NFT lending

1. Peer-to-peer NFT lending:

The first kind of NFT lending replicates the classic model of a lending marketplace: matching lenders with borrowers.

NFTfi is a popular peer-to-peer NFT lending platform. When you list your NFT as collateral on the platform, you receive loan offers from others. If you like any of the offers, you can accept one and immediately receive wrapper ether (WETH) or DAI (a stablecoin) from the lending user’s wallet. As part of the loan agreement, the platform automatically transfers your NFT into a digital vault – an escrow smart contract – for the duration of the loan.

You get your NFT back into your wallet when you repay the loan before the expiration date. If you default on your loan, the lender will receive your NFT at a huge discount. Drastic changes in an NFT collection’s floor price don’t affect the loan terms; it’s a peer-to-peer deal with its own terms.

2. Peer-to-protocol NFT lending:

While peer-to-peer NFT lending allows for customizable loan terms, peer-to-protocol NFT lending platforms allow you to borrow directly from the protocol.

Similar to DeFi lending protocols, these NFT lending platforms rely on liquidity providers adding crypto funds to a protocol pool. Borrowers can access liquidity immediately after collateralizing their NFTs and locking them up in the protocol’s smart contract-powered digital vaults.

3. Non-fungible debt positions:

MakerDAO, which is one of the oldest platforms in DeFi, is famous for its collateralized debt position (CDP) structure, which lets borrowers take out the stablecoin DAI when they collateralize ETH.

Following a similar model, JPEG’d offers non-fungible debt positions. The platform, which had a total value locked (TVL) of 4,846 ETH in its smart contracts as of May 2022, lets users collateralize whitelisted blue-chip NFTs like CryptoPunks and borrow a synthetic stablecoin, $PUSd, which is pegged to the U.S. dollar on a 1:1 basis.

As a borrower, you can use $PUSd to provide liquidity on the protocol and earn interest or you can swap it for other cryptocurrencies to seek opportunities elsewhere. And when you repay the loan, you can take back control of your NFT.

4. NFT rentals:

Instead of locking up NFT collaterals in a digital vault, the protocol facilitates peer-to-peer NFT rentals where the asset transfers from one wallet to another wallet for the duration of “tenancy.”

As a tenant of a rented NFT, you receive full access to token-gated perks like Discord servers or whitelist giveaways made available to the holders of certain NFTs.

Although for NFT owners the protocol allows access to liquidity, the motives aren’t necessarily about earning yields for those who buy a “tenancy” – in fact, they pay for the privilege of access and crypto credibility.