NFT lending and renting involves borrowing or renting non-fungible tokens (NFTs) for a fee.
Non-fungible tokens (NFTs) are being adopted across multiple major industries, such as entertainment, art, music, and gaming. At the same time, the potential of NFTs goes far beyond simply buying and holding. Similar to other blockchain-based assets, NFTs can be integrated into smart contracts, which enables a wide array of sophisticated functionality, similar to how decentralized finance (DeFi) has enabled previously nonexistent capabilities and applications for fungible tokens.
NFT lending and renting is providing a new way for players to earn an income on their holdings while enabling game developers to create new revenue streams by creating custom NFT lending marketplaces for their gaming ecosystem.
In this blog post, we’ll explore the concept of NFT lending and renting, the different types of NFT lending methods and their benefits, and the impact of NFT lending on GameFi.
Types of NFT Lending and Renting
NFT lending and renting refers to temporarily transferring the ownership of an NFT in exchange for a fee. In the context of blockchain gaming, this involves lending or renting in-game assets, such as characters, items, or virtual land, meaning borrowers can access and utilize these assets for a specified period without having to purchase them. Lenders can earn passive income from the fees paid by borrowers, while borrowers benefit from being able to unlock additional utility or use the NFT as an online status symbol.
NFT lending and renting primarily come in two forms: collateralized NFT lending and uncollateralized NFT lending.
Collateralized NFT Lending
In collateralized NFT lending, borrowers are required to put up collateral—typically in the form of cryptocurrency or another NFT—to secure their loan, which serves as a guarantee that the borrower will be able to return the value represented by the NFT, as specified by the lending smart contract.
Uncollateralized NFT Lending
With uncollateralized NFT lending, borrowers are not required to provide collateral. Instead, trust and reputation systems are relied upon to determine whether the borrower will return the rented NFT. Uncollateralized lending setups typically involve higher interest rates since the lender is taking on additional risk compared to collateralized lending.
Benefits of NFT Lending and Renting
Why rent an NFT? Many NFTs enable their owners to access special perks and utilities, such as exclusive content, communities, events, tickets, or the ability to mint another NFT. NFT renting is a more affordable way for borrowers to tap into the benefits of some premium NFT utilities without actually having to buy the NFTs. At the same time, NFT holders can earn yield on their NFTs, which may otherwise sit idle in their wallet.
As such, the biggest benefit for gaming NFT holders is the ability to earn income on their in-game assets by renting them to other players. In return, borrowers can access in-game NFTs for short-term use, allowing them to access new gameplay frontiers or utilize expensive or rare in-game items and experiences..
The second major benefit has to do with game developers. Creating a steady stream of income from game development is a challenge for many developers. Even for a game with a steady player base, developers typically need to provide ongoing updates—such as new features and bug fixes—that players who have already purchased the game expect to receive at no additional cost. Game developers building games with an in-game economy can create first-party NFT lending marketplaces that enable players to transact with NFTs that the game is integrated with. By taking a small cut from each transaction that involves in-game assets, game developers can introduce an additional revenue stream without having to monetize downloadable content.
NFT lending can also open up new business opportunities in the metaverse that involve lending avatars, virtual land, or real estate that are represented as NFTs.
How NFT Lending and Renting is Advancing GameFi
The gaming industry has often been at the frontier when it comes to adopting new technologies, and NFT finance is no exception. NFT lending and renting are helping game developers bring GameFi adoption to new heights by increasing access to unique in-game experiences and broadening the potential scope of blockchain gaming applications.
By enabling more players to access rare or expensive NFTs without having to purchase them, NFT lending marketplaces allow a wider range of players to access various in-game activities and gameplay experiences.
Ultimately, this increased accessibility enabled by NFT lending helps encourage innovation, leading to the creation of new game mechanics and sustainable revenue models, particularly for smaller game development studios.