Global financial systems and institutions seem to be on the search for an asset class that would ensure liquidity without the intervention of central authorities, and non-fungible token (NFT)-based loans is believed to be the answer. From a monetary expert’s perspective, the integration between decentralised finance (DeFi) and NFTs can enable investors to use their NFTs as collateral in return for cryptocurrencies or fiat currency.
According to Nansen, a cryptocurrency and blockchain analytics platform, highest NFT-based trading happened around August 29, 2021, which witnessed sales for 132,000 ETH, worth $422 million. The platform also highlighted on the developments around smart money related to this section, with the top 10 NFT traders recording over $185 million in profits. “I believe NFTs can be put up as security for a loan. The NFT is locked into a smart contract, once it has been agreed upon for a specific period of time or until the borrowed amount (plus interest) is repaid. In the event that the borrower is unable to make the loan payment on time, the NFT is
transmitted to the lender’s wallet as security for the outstanding balance,” Abhay Aggarwal, founder and CEO, Colexion, an NFT marketplace, told FE Blockchain.
Insights from market-based research has shown that NFT-based loans allow users to mortgage their NFTs for liquidity, without having the need to sell them permanently. As reported by Bybit Lean, a cryptocurrency knowledge-based platform, fractionalised ownership of NFTs can provide benefits such as enhancement of the asset class’ liquidity, help investors quickly assess the market value of an asset, and can be an easy form of monetisation.
“This collision of DeFi and NFTs has opened up possibilities for NFT holders by making it a more of liquid asset. Renting affords NFT holders the opportunity to earn passive income from their NFT collections on their own terms, without having to concern themselves with fractionalisation. This enables more liquidity to enter the market, since an expensive NFT can be divided into shares of its worth using fungible tokens,” Amanjot Malhotra, country head – India, Bitay, a cryptocurrency exchange, stated.
Reportedly, companies such as Arcade, NFTfi, Nexo, among others, are some of the platforms which have inculcated NFT-based loans to their ecosystem. Other companies such as Unic.ly and NFTX.io are marketplaces which allow users to deposit their NFTs into a vault for minting ERC-20 tokens. In December, 2021, Arcade concluded a $15 million Series A funding round to bring secured loans that connect the NFTs with DeFi. It is believed that sectors such as art, luxury, real estate, entertainment, among others, are also expected to benefit from NFT and DeFi’s correlation.
Moreover, market analysts believe that banks aim to use digital collectibles such as NFTs to back businesses to register and transfer digital assets on the blockchain, on account of data safety. As reported by bitsCrunch, a global data analytics company, users could post NFTs as collateral and credit providers could bid on the amount of their preference. Further, the marketplace could also permit users to select among DAI and ETH as their payment choice.
“Instead of buying digital photos, videos and game assets, we may be buying real estate and stocks. I believe this will mean a meta version in which everything will turn into an NFT token that can be bought with cryptocurrency. In the near future, companies will use NFTs to tokenize any real assets,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange, mentioned.