It’s no secret that NFT trading has slowed down a little recently. And, during this time, platforms like Blur, Binance, and Astaria have come up with new ways to increase the availability of funds. Significantly, they have introduced NFT lending options to help improve the flow of money in the market. Some traders believe in the benefits of this, while others feel it carries certain risks. So, let’s take a closer look at some of the problems with NFT lending.
TL;DR
- Major Web3 players have entered the NFT lending market, boosting the popularity of NFTfi.
- Blur’s Blend platform quickly dominated with an 82% share.
- NFT trading volumes may be declining, but the lending sector is thriving.
NFTfi: The Fusion of NFTs and DeFi Gains Momentum
Despite a decline in NFT trading volumes, the NFT lending sector is thriving. The emergence of NFTfi, a technology that combines NFTs with decentralized finance (DeFi), is gaining momentum. Reviews about this innovative concept, however, vary among users and experts.
So, what exactly is NFTfi? NFTfi consists of various tools designed to provide more practicality and liquidity for NFTs. These tools include NFT collateralized loans, fractionalized tokens, and the ability to rent or lend NFTs.
Moreover, NFTfi has experienced a surge in popularity as prominent Web3 participants have entered the market. In May, the well-known NFT marketplace Blur introduced Blend, a peer-to-peer lending platform that enables users to borrow funds using their NFTs as collateral. Taking advantage of Blur’s widespread popularity, Blend swiftly captured a remarkable 82% share of the NFT lending market in just three weeks. Following that, several other platforms emerged in the NFT lending space.
Binance introduced Binance NFT Loan, a feature that enables holders to obtain ETH loans by using their NFTs as collateral. Additionally, Joseph Delong, the former CTO of the DeFi protocol SushiSwap, launched Astaria, which relies on a third party to facilitate its lending market.
The Challenges of NFT Lending: Understanding the Pitfalls and Precautions
Of course, many traders have joined these platforms, as many are eager to get involved with the NFT lending trend. Users can lease their NFTs to traders who pay to hold them for a specific period. This allows the original owner to earn ETH, while the borrower gains access to an NFT ecosystem and exclusive perks.
But, it’s important to acknowledge the associated risks. In fact, some traders and NFTfi users have raised concerns about Blend’s lending mechanics. They have also advised new traders to educate themselves on safe practices before getting involved in borrowing NFTs.
As told by CoinDesk, Mason Cagnoni and Karan Karia of NFT lending platform Wasabi Protocol highlight the main risks of lending. Significantly, this is early liquidation when the price of a token drops. Another cause for concern is Blend’s “down payment” feature. This allows traders to make multiple payments over time for an NFT purchase. And, this can be challenging for newcomers to NFT trading.
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