The NFT lending and borrowing industry is experiencing significant growth, with the total volume of borrowing across all liquidity platforms recently surpassing $1 billion. As the industry becomes more competitive, companies are introducing new features such as “buy now, pay later” (BNPL) services, which allow customers to purchase NFTs on loan.
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To enhance liquidity in the NFT market, BNPL offerings have been introduced by various NFT liquidity providers; however, their core function remains the same – to extract liquidity from illiquid JPEGs (Joint Photographic Experts Group).
According to the NFT Club, JPEG files are digital image files that can be duplicated and shared freely. So it is hard to establish ownership with them. NFTs, on the other hand, are unique digital assets. So they represent ownership of a particular asset and can have significant value.
For instance, JPEG’d, one of the leaders in the emerging NFTFi space, allows its users to achieve this objective with additional features. By locking an NFT in the platform’s vault, users can obtain up to 60% of the NFT’s value in synthetic Ethereum (pETH) or dollars (PUSd). These synthetic tokens can then be exchanged for more prominent stablecoins on Curve, or they can continue to earn a yield on the platform.
BendDAO, on the other hand, enables users to make partial payments on specific high-value NFTs, with a minimum upfront payment of 40%. The remaining amount is covered through a flash loan from Aave. This process is quite similar to the financialization of the real estate market, where aspiring NFT owners take out a digital mortgage to acquire their desired Bored Ape or other NFTs.
On the other hand, P2P (peer-to-peer) lending allows for more tailored loan agreements between the borrower and the lender. This includes terms like interest rates, collateral, and loan duration, which can be negotiated (and renegotiated) on a case-by-case basis,” according to NFTfi’s CMO Andrej Skraba.
Moreover, Crylipto, the co-founder of BendDAO, stated that its lending and borrowing services are utilized to enhance the liquidity of NFT assets. According to them, individuals can use their NFTs as collateral to obtain Ethereum for liquidity requirements, instead of selling them.
Pros & Cons
While the idea of using BNPL for NFTs may seem unconventional, the industry’s major players believe it has enormous growth potential. By offering BNPL services, companies can attract new customers who may not have the funds to purchase NFTs outright, while also allowing existing customers to expand their collections without depleting their finances.
However, there are also concerns about the risks of lending and borrowing NFTs. Unlike traditional collateral, NFTs can be difficult to value and may fluctuate in price, making it challenging to assess the risk of default. Additionally, the lack of regulation in the NFT market means that there are currently no standardized rules for NFT lending and borrowing.
Despite these challenges, the BNPL trend in the NFT space shows no signs of slowing down, with more companies expected to enter the market and offer similar services in the coming months.
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