Published on October 11, 2022
Guide to NFT Lending Aggregators
NFT lending platforms give users the ability to list NFTs as collateral in exchange for liquid loans from others.
6 min read
What if you could use your blue-chip NFTs as collateral for a loan? What sounded like a crazy idea a few years ago is starting to sound a bit more legitimate.
Over the last two years, multiple NFT lending aggregators have popped up, each with its own specific purposes and benefits. Some are focused on staking NFTs to receive ETH loans while others are focused on renting NFTs out to use in games and marketing. In this article, we'll be going through three NFT lending platforms: BendDAO, NFTfi, and my personal favorite reNFT.
Started by pseudonymous founders CodeInCoffee and 0error_eth, BendDAO allows users to deposit ETH in return for yields or use NFTs as collateral to borrow ETH. "This functionality is designed to provide better liquidity for sellers," wrote the BendDAO team. "Sellers can cash out while waiting for the deal. The instant liquidity can be considered as the upfront payment from the future buyer."
As of September 4, there are currently 29,865 ETH ($47M) worth of NFTs as collateral across seven NFT collections: Bored Ape Yacht Club, CryptoPunks, Mutant Ape Yacht Club, Azuki, Doodles, Space Doodles, and CloneX. NFT holders can choose to instantly get up to 40% of the floor value on a listing; when they borrow ETH, they pay 1.84% APR.
Placing your NFT as collateral does not come without risk though. Like any loan market, there is a liquidation process with each NFT having its own liquidation threshold defined as maximum Loan To Value (LTV) or Debt Plus Interest to Collateral. If the NFT market changes and an NFT drops significantly in value, then a holder's NFT gets placed on auction. To get liquidated, an NFT must drop below a health factor of 1, where the health factor is defined as the Floor Price multiplied by the Liquidation Threshold and divided by Debt with interests.
Fortunately, with BendDAO, there is 24-hour liquidation protection, meaning that given the market fluctuates, a borrower will have a 24-hour protection period to repay the loan. In mid-August, there was a rumor that over 600 NFTs, including Bored Apes, Mutant Apes, Clone X, Azukim, and Doodles, were at risk of liquidation due to the collections' dropping prices. But, nothing that crazy actually happened. Between August 15 and the time of this writing, only 58 NFTs were liquidated on BendDAO.
Despite the necessary evil of liquidation, BendDAO is very friendly to its users. To avoid NFTs being stolen, NFTs are converted into representative, untransferrable ERC721 boundNFTs through instant loans. Despite this, borrowers will still receive any airdrops their NFT communities give them.
Founded by Stephen Young, NFTfi allows users to list their NFTs as collateral and receive wETH or DAI without selling their NFTs. When users list an NFT as collateral, they receive loan offers from other users. NFTs are then transferred into a smart contract, and if the borrower repays the loan, then the NFT is returned; if not, the NFT gets sent to the lender.
Like BendDAO, NFT-holders can be at risk of liquidation if they don't repay their loans in time. Once a borrower's loan is overdue, a lender can foreclose on the loan, which sends the NFT to the lender's wallet. According to statistics from Dune Analytics, there is currently a 9.8% loan default ratio, while the loan duration is used 72% of the time.
With over 150 NFT collections on the platform, NFTfi allows users to list NFTs from collections ranging from Autoglyphs to Bored Apes. As of September 4, Bored Apes have been used as collateral most frequently, bringing in 24,173 wETH in loans, with Mutant Apes coming in second place with 9,007 wETH in loans. Other popular collections include Art Blocks 2, Doodles, CloneX, and World of Women. Over 17,281 loans have been made for a cumulative loan volume of $254.9M.
reNFT is super different from BendDAO and NFTfi. Rather than focusing solely on giving out quick loans, NFTfi serves as a protocol allowing NFT-holders to rent out their NFTs.
In an increasingly virtual world, NFTs are being used to token-gate everything from Discords to Shopify stores. Renting an NFT is like getting a trial membership for a community. Rather than paying 5 ETH to join the Doodles Discord, why not pay .1 ETH per day to rent a Doodles and see if you like the community?
Founded by Nick Vale, Naz Vavryk, and Luis Masallera, reNFT is an NFT rental protocol and platform that enables borrowers to rent NFTs to be used for games, event tickets, token-gated platforms, and more. The platform offers upfront, collateral-free NFT rental as well as collateralized rental; this means lenders can get either a lump-sum loan upfront or have a consistent cash flow via their rented NFTs.
"There is a huge need for automated, trustless, collateral-free renting of digital assets such as NFTs to unlock new levels of economic activity in the Web3 landscape," said Vale. Sounds crazy? reNFT recently announced their $5M funding round co-led by Mechanism and gumi Cryptos Capital (cCC).
The Future of NFT Lending
Since the height of the market, many NFTs have plummeted in value — leaving countless wondering if NFTs are good investments. On August 13, OpenSea sank to a 13-month low for NFT trading volume.
As for NFT lending protocols themselves, many are unsure if these are good investments. Mike Dudas, founder of venture capital firm 6th Man Ventures, told me, "We haven't invested in any. Too rough in their current mechanics for my taste."
While I don't own any NFTs valuable enough to use as collateral and don't have enough knowledge to spectate on protocol mechanics, I'm most interested in renting NFTs with reNFT. I can see a real purpose here beyond making money.
I could see myself renting a Bored Ape to get tickets for ApeFest, renting a Doodles to use for marketing a brand, or even renting a CryptoPunk to use as a PFP on an anonymous Twitter account. If I just had a few more ETH, I could get into ApeFest next year instead of watching from the streets of NFT NYC…