NFT Lending Emerges as an Alternative to Selling Illiquid Digital Assets

NFT lending allows individuals to borrow money by using their non-fungible tokens (NFTs) as collateral, rather than selling them.

This concept is similar to pawning a watch, but with smart contracts holding the item instead of a shop owner.

The process involves listing an NFT on a lending platform, where a lender funds the loan in cryptocurrency, usually a stablecoin or ETH. The NFT sits in escrow until repayment, and if the borrower misses the deadline, the lender keeps or sells it.

There are two main models for NFT lending: peer-to-peer (P2P) and peer-to-pool. P2P platforms connect individual borrowers with lenders, who agree on loan terms directly. Peer-to-pool platforms use a shared pool of funds, where the loan amount depends on the collection and platform parameters.

NFT lending matters for individuals holding illiquid NFTs, such as those in collections like Bored Ape or Art Blocks. This option allows them to raise cash against their assets without selling, which can be beneficial if they want to wait for market recovery.