How to Unlock the Intrinsic Value of NFTs? In-depth Analysis of NFT Lending Business Models, Platforms, and Development Trends

In the future, using NFT as collateral to obtain crypto loans may reshape the characteristics of NFT, allowing digital assets to play a greater role.

(This article is authorized and reproduced from ChainNews, the original title is "In-depth analysis of NFT lending business models, platforms, and development trends", original article here)

In recent years, as economic uncertainty has reached almost historic levels, more and more people are looking to preserve and grow their assets. Making substantial profits in the online world is not uncommon - the first tweet by Twitter CEO Jack Dorsey sold for $2.5 million, a famous "Nyan Cat" image sold for $590,000...

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While the commodities and prices involved may vary, the above transaction categories share a common feature - those looking to profit from NFTs either intend to sell their NFT assets or plan to sell them in the future for potential appreciation.

Undeniably, this traditional strategy has brought substantial profits to many investors, but as the NFT market becomes relatively saturated, this strategy has not fully tapped into the embedded value of NFT assets.

NFT is well known for many use cases: games, crypto art, virtual worlds, insurance, domain names, and more. In addition, in the financial field, NFTs can allow digital assets to play a greater role.

The Collision of DeFi and NFT

Within just a few years, DeFi (Decentralized Finance) has achieved tremendous success in the crypto market, building numerous applications and gaining widespread adoption. MakerDAO allows for the creation of loans without banks and offers DAI, a decentralized crypto asset pegged to the US dollar. dYdX has created a new efficient way for crypto asset lending, borrowing, and trading. Decentralized exchanges like Uniswap have integrated DeFi scenarios, allowing users to securely and seamlessly trade ERC-20 based crypto assets. In the lending ecosystem, popular DeFi protocols like Dharma and Compound have also played significant roles.

Although NFT is currently the most exciting trend in the crypto space, DeFi continues to be the catalyst driving the continuous expansion of NFT boundaries. According to DeFi Pulse, DeFi is replacing traditional financial entities with decentralized financial entities, with a total market value exceeding $43 billion.

The trend of combining DeFi and NFT is quietly taking root. While most people are still focused on finding the composability within DeFi, some projects that are crossing DeFi into the NFT space have begun to show significant development potential. NFT lending has become the next explosive point in the decentralized finance field. So, what kind of collision will these two completely different systems bring? What magic will be unleashed when digital assets are used as real asset classes?

Why the Need for an NFT Lending Market

Utilizing Idle Assets

Today, NFTs are thriving, and sales on many NFT platforms have set records. However, the primary concern for NFT investors is the poor market liquidity. In other words, selling NFTs and finding suitable buyers can be time-consuming and challenging. Therefore, investors need to carefully consider the percentage of their investment portfolio allocated to NFTs. Apart from liquidity issues, the rapid growth of the NFT industry is bringing substantial returns for long-term investors.

Currently, the debt market is a missing component in the NFT ecosystem. A mature NFT ecosystem needs to establish a market where people can use NFTs to obtain loans and lease their NFTs for revenue. Many NFT users' assets in their wallets can only be used in specific games or platforms. Once detached from these games and platforms, their NFT assets remain idle in their wallets. If the market allows users to use their assets as loan collateral for leasing, enabling other users to use someone else's NFT on their platform, it will unleash the boundless potential of NFTs.

Clarifying NFT Valuation Further

The NFT collateral loan market may become one of the most effective ways to determine the fair value of NFTs. Users can post NFTs they want to use as collateral in the market, and other users can bid, offering an intended price.

Furthermore, the market can choose the loan term, whether the lender provides payment in ETH or DAI, which will ultimately help establish the fair value of NFTs.

For example, if seeking a loan using a CryptoKitty as collateral in the market, users can research the general market conditions of CryptoKitties, the last sale price (e.g., 20 ETH/$5,500), comparable CryptoKitties, and their specific attributes to determine their final bid. Through research, an average user may value it at 5 ETH/3 months, but a CryptoKitty expert may determine a valuation of 10 ETH/3 months based on its characteristics. This cycle of bidding and valuation, with multiple quotes and valuations, helps improve efficiency, leading to more reasonable fair values, stabilizing the valuation of NFT assets.

Benefits of NFT Lending

From an overall market perspective, loans can unlock asset value, providing much-needed liquidity for NFTs. Investors no longer need to worry about the difficulty of selling assets and can use loans to explore other opportunities in the NFT space.

From the lender's perspective, the NFT collateral loan market also has many benefits. If a borrower defaults on a loan, lenders who wisely choose collateral have the opportunity to acquire the pledged NFT at a very low price.

Maximizing the use of NFT assets can potentially bring substantial income. However, when liquidity in the art and collectibles market is lower than other asset types, especially when owners of valuable art and collectibles need cash in the short