DeFi (decentralized finance) continues to grow and one of the recent developments is led by Non-Fungible Tokens. The example of Rocket NFT is a first in this field. This project offers the possibility to borrow or lend an object on the blockchain in exchange for stablecoins.
👉 What is a non-fungible token (NFT) or non-fungible token?
Non-Fungible Tokens (NFTs) have taken the world by storm, and for good reason. These unique digital assets have made it possible for creators to monetize their digital content like never before. NFTs are unique because they cannot be replicated or replaced, making them one of a kind. With the growing popularity of NFTs, the concept of lending and borrowing them has emerged. In this article, we’ll take a closer look at what lending and borrowing of NFTs entail, and why they are important.
👉 Generate passive income with cryptos
If you play games or collect art on a platform using blockchain, you must have accumulated a certain number of Non-Fungible Tokens in your wallet. But here’s the thing: You must have realized that it was more difficult to sell your Cryptokitties or his Chainbreakers sword than to exchange his Bitcoin into Ethereum. But have you ever wondered if it’s possible to get passive income from your NFTs?
Well, you should know that today initiatives are being developed in this direction.
👉 What is DeFi or decentralized finance?
What are Non-Fungible Tokens (NFTs)?
NFTs are digital assets that are unique and cannot be replicated. They are built on blockchain technology, which makes them tamper-proof and verifiable. NFTs can represent any digital asset, such as music, art, videos, and even tweets. When someone purchases an NFT, they are purchasing the ownership of the unique digital asset. This means that they have exclusive rights to it, and it cannot be duplicated or replaced.
How do Non-Fungible Tokens (NFTs) work?
NFTs work by utilizing blockchain technology, which is a decentralized digital ledger that records transactions. Each NFT has a unique digital signature, which is stored on the blockchain. This signature is what makes each NFT unique and valuable. When someone purchases an NFT, they are essentially buying the digital signature that represents the unique digital asset.
What is the difference between fungible and non-fungible assets?
Fungible assets are interchangeable, which means that one unit of the asset can be exchanged for another unit of the same asset. For example, currency is fungible because a $10 bill can be exchanged for two $5 bills. Non-fungible assets, on the other hand, are unique and cannot be exchanged for another unit of the same asset. For example, a painting is a non-fungible asset because each painting is unique and cannot be replicated.
What is lending and borrowing of Non-Fungible Tokens (NFTs)?
Lending and borrowing of NFTs is the process of temporarily transferring ownership of an NFT from one party to another in exchange for a fee. The owner of the NFT retains ownership of the unique digital asset, but the borrower has the exclusive rights to use it during the lending period.
How does lending and borrowing of Non-Fungible Tokens (NFTs) work?
Lending and borrowing of NFTs work in a similar way to traditional lending and borrowing. The owner of the NFT puts it up for lending on a lending platform, and interested borrowers can view the available NFTs and choose which ones they want to borrow.
The idea of the project Rocket NFT is worn since late 2019 by Alexandre Masmejan. It is currently part of the Gitcoin incubation system. It was created from a Telegram group named “Undercollateralized #DeFI” whose purpose was to value tokens that were not Ethereum or ERC-20.
Many people in this group wanted to lend high-value NFTs (such as Decentraland LAND, Josie’s art, tickets to an event for NFT.NYC, a decentralized domain name, or a video game item…) for a fee. So Alex started working on a form of banking where the lender will have to escrow his property so that the borrower can use it temporarily.
Since March 2020, another partnership with Buillionix (a service that offers to transform its DGX -a crypto-currency backed by gold- into NFT), has allowed its NFT dedicated to be used by Rocket NFT.
The financial model of Rocket NFT will be in the form of a DAO (Decentralized Autonomous Organization) and briefly here is how it will work:
- Users escrow NFTs, essentially “offering” them to Rocket as collateral
- Rocket to tap into Loan Pool funds
- If the NFT is accepted, a loan in DAI will be sent
- The issuance of the NFT is done by multisig
Sf you want to participate in the project you will have to fill out this form and wait for the team to get back to you.
Benefits of lending and borrowing of Non-Fungible Tokens (NFTs)
Generate passive income: Lending out NFTs allows owners to generate passive income by earning a fee for lending out their unique digital assets.
Diversification of assets: Lending and borrowing of NFTs can provide an opportunity for diversification of assets, just like traditional lending and borrowing.
Access to exclusive NFTs: Borrowers can access exclusive NFTs that they may not have been able to purchase otherwise.
Lower investment risk: By borrowing NFTs instead of buying them outright, borrowers can reduce their investment risk while still enjoying the benefits of owning an NFT.
Although this project marks a technological advance, CADs are not without risks. The history of Ethereum is already marred by a hack at 50 million dollars and recently the setbacks of MarkerDAO have shown us that other flaws exist with this mode of operation.
The big difference between MakerDAO and Rocket NFT is that it is not stablecoins that will be deposited against Ethereum but NFT against DAI.
Rather than being used as currency, they usually have a well-defined utility beforehand and thus will be unlikely to be subject to market fluctuations.
Without thinking of the worst (a hack), there are other factors to consider in terms of the risks associated with Non-Fungible Tokens in general:
- The first is the outright shutdown of the game servers. If your token is no longer useful, then it no longer has no value.
- The second is the modification of the “rules of the game which may change the value of your token
- The third, if it is a work of art, will depend on the reputation of the artist
Since it is a loan or a loan over a fixed period of time, whether you are a borrower or a lender, you have the security of recovering or returning the property after a while. The first two risks can be reduced if you seek information about the project that concerns the property that will be sequestered. As for the third, you will have to trust the team’s taste to accept or not your artwork.
At first glance, the biggest risks associated with this project are therefore related to external factors and do not seem to directly impact the operation of Rocket NFT. The use of the Moloch DAO model (which allows for the possibility of withdrawing from the commitment within 10 days in case of disagreement) is rather reassuring in terms of governance.
If the context around the NFT changes, it must be taken into account that the inconvenience caused will be limited in time. On the other hand, on the lender’s side there will be less chance that Rocket NFT will accept this new loan.
This universe is still very young and this project even more so, but it marks a step in the process of “tokenization of the world”
Frequently Asked Questions (FAQs)
Lending and borrowing in crypto refer to the process of borrowing or lending cryptocurrencies for a specific period, usually for a profit. Lenders provide their digital assets to borrowers who use them for trading or other purposes and pay back the borrowed funds with interest.
NFT lending offers several benefits, including earning interest on idle NFT assets, gaining access to liquidity without selling NFTs, and leveraging NFTs as collateral for loans. It also allows NFT owners to retain ownership of their assets while generating a steady stream of passive income.
People make money from NFTs because of their uniqueness, rarity, and scarcity. NFTs are valuable because they are digital assets that are authenticated on a blockchain network, making them unique and impossible to replicate. NFTs can be sold for high prices in the market, and their value can increase over time, allowing people to make a profit.
Banks can leverage NFTs in several ways, such as using them as collateral for loans, providing NFT-based financial products, and investing in NFTs. NFTs can also help banks reach a new market of tech-savvy individuals interested in the crypto industry and provide a new asset class for diversification.
Yes, you can borrow against an NFT. NFTs can be used as collateral for loans in the same way as traditional assets. Borrowers can provide their NFTs as collateral to lenders who provide them with a loan. If the borrower defaults, the lender can liquidate the NFT to recoup their funds. However, the amount of the loan and the interest rate may depend on the value and rarity of the NFT.