When people think about crypto loans, they usually picture Bitcoin or Ethereum being used as collateral. But surprisingly, NFTs can also be used to secure a loan in some cases.
In this guide, we’ll explain what it means to use an NFT as loan collateral, how the process works, and why some people might find it useful.
What Are NFT-Backed (Collateralized) Loans?
An NFT-collateralized loan is a type of loan where the borrower uses an NFT they own as security for the loan. This means the borrower temporarily gives control of the NFT to the lender, and in return, the lender provides them with funds—these can be in the form of cryptocurrency or, in rare cases, fiat money like USD or EUR.
How Do NFT Collateralized Loans Work?
The process works a lot like putting up a valuable item, such as a painting or jewelry, as collateral for a traditional loan. You hand over your NFT to a platform or a lender who first evaluates how much it might be worth. If they accept it, they lend you money based on that value.
Just like with regular loans, if you fail to repay what you owe, the lender has the right to keep or sell your NFT to recover the loaned amount. The whole process depends heavily on trust, smart contracts, or third-party escrow services to ensure fairness and security.
Why Use NFTs as Collateral?
Using NFTs as collateral might sound odd at first, but there are some good reasons why people choose to do it. Below are the main benefits:
1. Possibility of Getting More Than the NFT Is Worth (Undercollateralization)
In most loan situations, you have to provide more value in collateral than the amount you borrow. But with NFTs, things can be different.
NFTs are tricky to value accurately. One platform might think your NFT is worth a lot, while another might not see any value at all. Some lenders use algorithms to price NFTs, while others rely on human appraisers or personal preferences.
This means that sometimes a lender may value your NFT much higher than the general market, especially if they personally like it or believe it has strong future value. In such cases, they might offer you a loan that is higher than what most people think the NFT is worth. However, this doesn’t happen often and usually depends on finding the right lender.
2. Let Your NFTs Work for You Instead of Sitting Idle
Most people buy NFTs and then forget about them. Apart from using them as social media avatars or one-time digital tickets, NFTs often remain unused.
If you’re okay with temporarily giving up control of your NFT, you can use it to get a loan or generate income, making your digital assets more productive instead of letting them gather dust in your wallet.
3. Earn From Lending NFTs to Galleries
Some physical galleries around the world now display digital art using screens, including NFTs. These galleries—whether pop-ups or part of traditional art spaces—might be willing to pay to display rare or iconic NFTs.
If you own an NFT that is valuable, historically significant, or artistically impressive, you might be able to loan it to a gallery for a fee. Not only can this earn you money, but it also helps your NFT gain exposure and contributes to the digital art world.
Traditional galleries are also becoming more interested in digital and interactive art, so the demand could grow. The challenge is finding galleries that are open to such arrangements, which might require research and outreach on your part.
Risks Involved in NFT Loans
Despite the benefits, borrowing against NFTs carries a number of risks. Here are the main issues you should be aware of:
1. The NFT Market Is Still Small
The value of NFTs has dropped compared to their peak. Many NFTs won’t fetch a good loan offer today. Unless your NFT is very well-known and historically valuable, it might be hard to get a loan amount that’s even close to what you paid for it.
2. Prices Can Be Volatile
The value of NFTs can go up or down quickly. If your NFT suddenly increases in value while it’s locked as collateral, you could miss a big profit opportunity. This is especially frustrating for NFT traders who watch the market closely and try to sell at the right moment.
On the other hand, if the NFT has sentimental or long-term value and you weren’t planning to sell it anyway, then price swings might not matter to you.
3. Theft or Loss of NFTs
NFT loans, especially through DeFi platforms, carry risks of technical failure or fraud. If the lending platform is hacked or goes bankrupt, your NFT could be lost permanently.
In traditional finance, legal systems exist to help you recover stolen money or assets. But with NFTs, many countries still don’t have clear rules on how to handle these cases. This makes legal recovery of stolen NFTs very difficult, if not impossible.
Top Platforms for NFT Loans in 2024
While the NFT loan market is still small, a few platforms are making it easier to borrow against NFTs. Here are some of the best-known options:
NFTfi
NFTfi is one of the oldest platforms in the NFT lending space. It allows borrowers to list their NFTs and propose their preferred loan terms. Lenders browse the available NFTs and make offers if they’re interested.
NFTfi uses appraisal tools like NFTBank and Upshot to suggest values for NFTs. These tools rely on algorithms and machine learning, so they can give rough price estimates. However, they may not capture an NFT’s full emotional or cultural value—especially if it’s unique or deeply artistic.
If you have a CryptoPunk or Bored Ape, these tools can help compare it with past sales. But for more niche or personal NFTs, human judgment often matters more.
Arcade
Arcade is another peer-to-peer NFT lending platform, designed to help users unlock liquidity from their NFTs. One standout feature is that lenders on Arcade can offer loans to several NFT holders at once—so long as all the NFTs come from the same collection. This is great for companies or collectors building themed exhibits.
Caviar.sh
Caviar.sh is a different kind of platform. It’s an NFT automated market maker (AMM), meaning it connects buyers and sellers automatically without using a traditional order book. You can add your NFTs to a liquidity pool, and in return, you earn rewards.
However, there’s a catch: someone might buy your NFT from the pool. If that happens, you lose it. The best-case scenario is that you earn rewards while your NFT stays in the pool and no one buys it, and then you pull it out later. But there’s no guarantee.
This method is experimental and risky because NFTs are unique and don’t fit well into AMM systems. Still, it’s an innovative idea worth exploring if you understand the risks.
OpenSea
OpenSea doesn’t offer NFT-backed loans, but it’s the biggest NFT marketplace in the world. If you’d rather sell your NFT than use it for a loan, OpenSea is a popular platform to do so.
In the future, it’s possible OpenSea might add a lending feature, so it’s worth keeping an eye on their updates.
Should You Consider an NFT-Collateralized Loan?
NFT-backed loans can be a good option if you own high-quality NFTs—especially those considered “blue-chip” like CryptoPunks or Bored Apes. Instead of letting them sit unused, you can unlock their value through a loan.
But for people holding less valuable or unknown NFTs, getting a loan might be difficult or not worthwhile. Also, most NFT lending platforms are based on DeFi, meaning they only offer crypto loans, not fiat money like USD. If you need actual cash, it can be harder to find a suitable lender.
A Better Alternative: Crypto-Backed Loans
Since NFT loans are still rare and complicated, many people prefer to use their fungible cryptocurrencies—like Bitcoin or Ethereum—as collateral. For example, Ledn is a company that lets you borrow fiat money by locking up your BTC or ETH.
Currently, Ledn offers loans at annual interest rates between 14.4% and 16.5%, with a loan-to-value (LTV) ratio of 50%. This means you can borrow up to 50% of the value of your crypto. The process is simple and quick, making it a great option for anyone who wants to access cash while keeping their crypto investments intact.
Final Thoughts
NFT lending is a fascinating new area in the world of digital finance, but it’s still in its early days. Since the NFT market didn’t last long at its peak, there wasn’t enough time or demand to fully develop lending and borrowing services for NFTs.
That said, a few platforms are working hard to make NFT loans a reality. However, the current process can be slow, uncertain, and risky.
If you own NFTs and want to earn from them, NFT lending can be a good option—but only if you understand the risks. For more straightforward borrowing, crypto-backed loans through platforms like Ledn are currently a more reliable and faster choice.
Disclaimer
This guide is brought to you by Newshub.co.ke and is intended for general informational and educational purposes only. It is not professional legal, financial, tax, or investment advice. Always read Ledn’s full Risk Disclosure Statement and Disclaimers before making any decisions.
Join Gen Z New WhatsApp Channel To Stay Updated On time https://whatsapp.com/channel/0029VaWT5gSGufImU8R0DO30
