It’s essentially the temporary provision or allocation of an NFT, in exchange for obtaining liquidity, much like other forms of lending. Using an asset as collateral, to provide liquidity to a particular cryptocurrency or to another user, or a specific protocol. During the process, terms and conditions are agreed between the parties and protected by smart contracts on the specialized platforms.
NFT loans emerged as a solution to a situation that was occurring in the crypto space, this was largely a lack of liquidity.
Although the environment of cryptocurrencies is related to that of NFTs, they do not work the same.
If at the time of writing this article you want to sell or buy a BTC, an ETH, XRP, etc, you can do it almost instantly, there is constant demand and supply and so, enough liquidity in various markets to make quick and frequent transactions.
With NFTs, it doesn’t work exactly like that, the purchases and sales of Tokens can be much slower, all this while the market grows and expands more and more every day, as it has been doing for some time.
There are people who invest all their capital or almost all their capital in NFTs, and run out of liquidity. This situation led to the emergence of a new type of loan within the scope of NFTs, that is, NFT loans.
There are different models of NFT loans that are structured as follows:
- Peer-to-peer NFT loans.
- NFT loan from peer to protocol.
- Non-fungible debt positions.
- NFT rentals.
Peer-to-peer NFT loans:
The dynamics of this model are relatively straightforward, in that, the borrower places his NFT, or NFT’s, as collateral, by doing so he will begin to receive multiple offers from lenders for his NFTs, he will choose the offer that best suits him. These deals include the terms and conditions of the loan.
Once the borrower selects an offer, according to the agreed amount in the terms, he will receive a deposit from the lender’s wallet, it should be noted that this amount will be deposited in cryptocurrencies or stablecoin. This will depend on each platform, since each one has its own characteristics regarding the currencies or cryptocurrencies that it applies.
Subsequently, as part of the loan agreement and terms between the parties, the platform transfers the NFT in question to a digital vault (an escrow smart contract) for the duration of the loan.
The borrower then gets their NFT back when they pay before the loan’s due date. If you do not make the payment before the due date, the lender will receive your NFT at a great discount.
It is also important to note that drastic changes in the minimum prices of an NFT collection do not affect the terms of the loan, however, let us remember that it is a peer-to-peer agreement with its terms and conditions. An example of this type of lending platform is NFTfi.
NFT loan from peer to protocol:
This model differs from the previous case in that, the lender is the protocol; therefore the loans are not customizable.
In the same way, the borrower places his NFT or NFTs as a deposit to act as collateral in digital vaults (via a smart contract), afterwards, you can take the direct loan from the protocol.
These protocols work the same way DeFi lending protocols do, they constantly need to be provided with liquidity.
Using this model, the most important platforms are BendDao and Pine. Each of the platforms have different loan conditions, capacities and characteristics, as well as different cryptocurrencies, among which the following stand out: ETH, SOL, LINK.
One of the most important things to pay attention to are the terms and conditions on the Pine platform, users will lose their NFTs in the digital vault, if they do not pay before the expiration date.
While, BendDAO liquidates, and collateralizes NFTs when the minimum collection price falls below a certain health (safety) factor, which is based on the market value of the NFT’s collateral and the amount borrowed. But there is a 48-hour holding window before the final settlement occurs, giving the NFT owner a chance to bail out their beloved NFT from reselling or repossession.
Both platforms promise to make updates that better defend the interests and rights of borrowers.
Non-fungible debt positions:
In the same way as MarketDao operates in DeFi, famous for its collateralized debt position (CDP) structure, where people can take loans in stable currencies by leaving their ETH as collateral, essentially the same thing happens with NFT’s.
Platforms like JPEG’d offer non-fungible debt positions, which allow users to collateralize top-tier whitelisted NFTs like CryptoPunks and borrow a synthetic stablecoin, $PUSd, that is pegged 1:1 to the US dollar.
This is how borrowers have the option to benefit within the NFT environment, since once they have liquidity they can make other financial movements that may even help them pay their debt on time.
They can use said $PUSd, to supply liquidity in the protocol and earn interest, or they can exchange it for other cryptocurrencies to search for opportunities in other NFT or DeFi places. And when you pay off the loan, you can regain control of your loaned NFT.
NFT Rentals:
The difference between this and previous models is that, there is no digital vault (controlled by smart contracts), instead the protocol facilitates the rental of Tokens between peers, where the assets are transferred directly from the seller’s wallet, to the buyer’s wallet, this is how the tenant figures come into action.
In addition to the scheduled amount, the key is in the rental time, simply being in possession of the Token. Since its bearer can enjoy all the privileges of said asset, be it access to gifts belonging to the white list, or absolute access to Discord servers.
It is important to note that one of the main characteristics of this NFT loan model is that the lender does not necessarily seek financial gain. This model is really ideal for gaining access to exclusive benefits belonging to certain NFTs, as well as obtaining credibility and a good reputation in the field.
In a case of a three-month CryptoPunk rental last year, the tenant saw their social media “engagement” increase and made a name for themselves in the space.
An example of somewhere that uses this NFT lending model is the platform: reNFT.
In conclusion, it is important to note that before starting in the NFT lending space, take into consideration that financial investment in NFTs, DeFI, or the gap between the two, as in the current case, also represents a risk, things such as sudden crashes in the cryptocurrency market, smart contract exploits, and regulatory crackdowns are all still possible and may affect your assets.
Although many of these platforms are audited, remember that they are fairly young financial companies, constantly exposed to stages of development, experimentation and errors, which is why an audit does not guarantee total security, it only points out errors in the code of a platform until where the auditor can detect so it’s worth being skeptical and careful.
What is O-MEE?
We’re living in an experimental new world. From the metaverse to NFT’s. Everything’s in flux and everything’s new. But, web 2.0 hasn’t kept up. We’re still giving away art for hearts and likes. It’s time to reinvent. Unfriend social feeds. Unlike shady algorithms. Unfollow ads. We’re giving you your independence and equity back. So you can experiment, compose and innovate. Create meaningful value from your work. Connect with your fans. And subscribe to your favourite creators’ journey. We call it O-MEE. A social subscription and NFT Marketplace for Web3.0. Break conventions. Forge a new path. And challenge what art can be. O-MEE, reinvent your future.
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The NFT community provides the foundation to create, support and innovate individualistic and artistic independence and O-MEE’s underlying vision aims to provide a platform that interconnects their social and NFT experiences.
In addition, the O-MEE subscription feature allows creators to monetize specific content through flexible pricing plans, providing their followers unrestricted access to their profile and exclusive NFTs. We encourage creators and artist to generate more followers, more likes, more engagements, more subscribers and more revenue. O-MEE recognises how hard creators work to produce exclusive content, and we want to reward them. O-MEE offers a zero commission on all revenue generated through their subscription model.
O-MEE Platform Features;
1. NFT Marketplace: Explore, discover, collect, bid, buy, sell and mint exclusive NFTs and digital artwork.
2. Subscription Model: Subscribe to your favourite creators and gain exclusive and unrestricted access to their profile and NFTs with a zero percent commission rate on all revenue generated.
3. Sociability: Interact, engage, message, share, like, promote and connect with creators and the community.
4. Create and Republish Media: Experiment, innovate and create pictures and videos for your followers. Integrated API connectors allow users to republish and mint existing pictures and videos from mainstream media sharing apps such as Instagram, YouTube and TikTok.
5. DeFi: Staking membership programme and farming partnerships gives users and token holders the ability to earn
6. Ownership: Users own 100% of their content. No middlemen. No third party fees. No censorship.
7. No Oppressive Algorithms: Be in control of your content feed through their filter tool. You decide what you see.
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