What is NFT Lending: Everything to Know

A recent Web3-focussed report had claimed that the “utility” element of non-fungible tokens (NFTs) is the top-most reason for people to keep investing in them, despite the fluctuating crypto market. When we talk about the usability of an NFT, there are multiple ways like trading it within games for favours or funds or also renting it out to others who may need the NFT that is in your possession. Lending NFTs in the Web3 world helps both the owner and its renter — where one receives the rent and the other uses the NFT in a compatible metaverse or any Web3 game.

The trend of lending NFTs has picked up pace within the Web3 community, crypto exchange Binance had testified in a blog posted in February 2023. NFT lending allows NFT holders to avail liquidity without having to sell off their assets.

While some may agree to rent out their NFTs on a daily, weekly, monthly basis — to say, gamers who require these NFTs to go ahead, but do not wish to purchase them — others may use NFT lending as a method to secure urgent loans.

“Since an NFT also has accessories… Like how an NFT car game might not only have car NFTs but also accessories, a person who takes the NFT out on lending might have purchased some of these accessories, and to keep them intact, they might even end up buying their own NFT, and for all you know, they might buy more and give it out on rent, which propagates the cycle,” said Kameshwaran Elangovan, COO and Co-Founder at GuardianLink told Gadgets 360. Based in India, GuardianLink is an NFT ecosystem that facilitates activities around the digital collectible.

This practice in the crypto industry gives NFT holders access to capital while having them retain the ownership of the digital collectible.

“Lending, in case of all businesses, creates a secondary market and helps expand on the number of users who are exposed to a certain product or service, and NFTs are not an exception. NFT lending is bound to bring in more people into the Web3 ecosystem,” Elangovan said.

Borrowers of NFTs also, meanwhile, get to skip spending on purchasing NFTs they need only for some time. This safeguards them from falling prey to financial risks.

“Also, lending propagates secondary adoption. After some time, it is quite likely that the owner of the NFT might want it back because they invested in it and the person who, for a short time, was accustomed to having the NFT in their control will want to rent it again. This creates a perpetual market not only for people who give it out but also for people who take it on a lending basis,” Elangovan added.

The cumulative volume for borrowing against NFTs reportedly hits $1 billion (roughly Rs. 8,195 crore).

NFTfi and BendDAO are among known NFT lending and liquidity providers.

As per Elangovan, NFT lending could help sceptic but intrigued Indians dabble in the sector safely.

“In a market like India where people might not readily get into a commitment of buying, lending definitely helps familiarise themselves with the benefits and utilities of NFTs before they get into buying one,” he noted.

NFT sales reportedly rose by a massive 117 percent in February 2023. Around March, the valuation of the global NFT market climbed to its nine-month high since June last year to over $2 billion (roughly Rs. 17,200 crore).