NFTs Meet DeFi: The Emergence of NFT Loans

The fuse connecting the NFT and DeFi worlds has been sparked with new projects like Axie Infinity, Rarible, and MEME integrating DeFi concepts like liquidity mining and staking to build early networks. Now the space has expanded into lending and borrowing with non-fungible loan platform NFTfi, which has facilitated over $60,000 in collateral backed loans between users.

NFT Meets DeFi

Launched in May 2020, NFTfi is a protocol that enables users to deposit their NFTs as collateral in order to obtain an ETH denominated loan. Users can set their desired terms for a loan (e.g. interest rate and ETH amount) or wait for potential lenders to make individual offers.

The NFTfi platform has over 60 users with $60,000 in loans originated against NFT collateral.

While this might be a rounding error compared to most DeFi protocols, this initial activity is important as more liquidity for historically illiquid assets may enable new applications.

NFTfi takes a 5% share of the interest that the lender earns on successful loans. So a loan of 1 ETH paid back a month later for 1.05 ETH would have a 5% charge on the 0.05 ETH interest. As the usage and quantity of loan volume increases, NFTfi plans to reduce its fee. To date, the amount of interest paid by users totals around $4,000 with platform fees accounting for $185. Although not a lot of money, this is an early sign of demand.