Borrowing against NFTs surges to a $1 billion industry

Borrowing against NFTs surges to a $1 billion industry

The market for borrowing against non-fungible tokens (NFTs) has surpassed $1 billion in cumulative volume. Platforms like NFTfi, BendDAO, and Paraspace, which allow users to unlock the value of their NFTs, have fueled this by allowing users to use their NFTs as collateral without selling them.

NFTs used as collateral for borrowing and lending  

The NFT market has grown astonishingly, with exceptional sales and increasing technology adoption. This growth is partially attributed to using NFTs as loan collateral within decentralized finance (DeFi) platforms.

Borrowing against NFTs surges to a $1 billion industry - 1
Total borrow volume in dollars, Source: Dune

Dune Analytics research shows that borrowing against NFTs has totaled $1 billion across several lending platforms, including market giants NFTfi and BendDAO and more recent entrants like Paraspace.

As of April 6, NFTfi facilitated over $390 million, BendDAO had nearly $298 million, and Paraspace had already hit $236 million, with over 40,000 cumulative users across all platforms.

Reasons behind the boom

There are many reasons for the rise in borrowing against NFTs. Firstly, lending and borrowing platforms provide a solution to NFT holders’ demand, which is to find ways to unleash the value of their assets without selling them. Also, the NFT market’s reduced volatility has increased the appeal and viability of using NFTs as collateral.

Maintaining asset ownership while gaining access to liquidity is one of the key benefits of borrowing against NFTs. This is especially helpful for people who require access to cash but also wish to hold onto their priceless NFTs, like unique artwork or collectibles.

How does it work?

Although the offers of the various NFT liquidity providers vary slightly, they all share the same fundamental idea: extracting liquidity from illiquid jpegs. JPEG’d, for instance, enables users who store an NFT in their vault to borrow close to 60% of the NFT’s worth in dollars (PUSd) or Ethereum (pETH). These artificial tokens can then be swapped for more well-known stablecoins on Curve or can keep earning yield there as well.

BendDAO allows customers to make down payments on particular blue-chip NFTs with a minimum upfront payment of 40%. A flash loan from Aave covers the remaining amount. Paraspace is expanding on this concept by adding new features, such as allowing users to stake their APE tokens on the platform.

However, despite the impressive numbers, the market for borrowing against NFTs is still in its infancy. The daily average of users on all platforms has never exceeded 400, and the amount of money borrowed each day is likewise extremely low, rarely exceeding $1 million per site.

For the sector to keep expanding, it must use NFTs’ potential as digitalized property rights and acknowledge that anything could end up as an NFT. The industry should also concentrate on educating the public about these kinds of instruments and the numerous lending procedures available to owners of digital assets.

Overall, the ability to borrow against NFTs is a fascinating development that creates new possibilities for NFT owners and the ecosystem. As the market matures, we expect to see even more innovative use cases for NFTs, including borrowing and lending.

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