Wednesday, December 8

How to apply for a $ 1 million loan using an NFT as collateral


Using an NFT as collateral to apply for a loan is one of the many use cases for non-fungible tokens. An example of this happened on October 28, when a user deposited an NFT as collateral for which he received a loan of $ 1.4 million. The use of NFTs as collateral has been around for some time on some platforms such as Aave or NFTfi. However, it has been in recent months when it has taken on special relevance, as a consequence of the evolution of Decentralized Finance and the increase in prices of NFTs.

Although many people still think that NFTs only have applications in the art market, the truth is that non-fungible tokens and smart contracts allow us to go much further, and can be useful in multiple industries. In fact, the use of NFTs as collateral to borrow in Decentralized Finance through smart contracts is becoming more and more frequent.

The operation is very similar to when you go to the bank to ask for a loan and leave your house as collateral. The main difference is that in this case, banks are replaced by smart contracts and goods are represented by NFTs.. Therefore, the value of the NFT that remains as collateral depends on its market value, its properties and its usefulness.

How to apply for a loan with an NFT as collateral

To use an NFT as collateral for a loan, simply select one of the NFT assets in our crypto portfolio and click on “list as collateral” to sign that the asset can be included in the list. The selected NFT will be shown to other users in the loan market and you will be able to receive offers. Once one or more users have made a loan offer for this NFT, it will change color and turn blue. When an offer is accepted, the NFT will be locked into the contract as collateral and the loan will be paid into your wallet as wETH, the platform’s token.

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The largest loan issued to date by depositing an NFT as collateral took place on October 28 on the NFTfi platform. A user, hiding under the pseudonym KrypToniK, left as collateral an NFT belonging to the Autoglyphs collection, for which he received a total of $ 1.4 million in the DAI stablecoin.

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Similar to cryptocurrency loans on DeFi

The autoglyphs They are an experiment in generative art, each unique and created by code running on the Ethereum blockchain. They have been created by Larva Labs, the same company that created the cryptopunks. It is a collection of 512 NFTs. In the present case, the NFT used to request the loan was number 488, considered the most exclusive and valued at 2.5 ETH in OpenSea.

The operation of loans leaving an NFT as collateral is very similar to loans with cryptocurrencies in DeFi. However, interest rates on NFT loans are slightly higher. In the case of KrypToniK, the loan has a duration of 30 days at an annual percentage rate (APR) of 9.69%. In the event that the user fails to pay, the NFT will become part of the platform automatically, through a smart contract.

Discovering DeFi: how to apply for a loan by skipping the banks

NFTfi is a decentralized finance platform (DeFi) that is characterized by allowing loans with NFTs as collateral. According to data from Dapp.com, NFTfi has already lent about $ 9 million and has made a total of 626 loans in the last month.

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