NFT lending offers a way for NFT holders to access liquidity and borrowing options. Understand how NFT lending works before diving in.
NFT lending allows NFT holders to take out loans against their assets. It has grown in popularity as a way for investors to unlock liquidity and access borrowing.can be bought and sold, held, or traded, and they are also now part of other decentralized finance arrangements, including NFT lending. Demand for NFT lending has risen in part because the nonfungible, or unique, nature of NFTs makes them difficult to utilize in other DeFi sectors.
The platform will put the NFT into an escrow smart contract for the duration of the loan period. If the borrower pays the loan plus the interest before the expiration of the loan period, the NFT is returned. The marketplace will typically charge a fee based on the principal amount of the loan. If the borrower defaults on the loan, then the lender receives the NFT, which is usually worth more than the loan value.
The nonfungible nature of NFTs usually makes them indivisible. They have to be bought or sold as a whole. This is in contrast to fungible cryptocurrencies like BTC, which are divisible; investors can own fractions of Bitcoin, called. Fractionalized NFTs are represented by smaller, fungible tokens, with each token representing a share of ownership in the original NFT.
An NFT owner may sell shares they have fractionalized to raise quick funds. They can then obtain a loan in the NFT lending market by using the remaining, unfractionalized portion of the NFT as collateral. Owners are able to access a larger amount of capital with this method than they could with fractionalization or lending alone.Unlocking NFT liquidity for owners and digital art creators, NFT lending facilitates borrowing without the need for credit checks.
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