The NFT marketplace is a sector of the crypto ecosystem that saw exponential growth in the past year. But as sales have decreased in recent months, blue-chip NFT holders are looking for other opportunities to scale.
NFT global sales volume hit $4.6 billion in January, but declined almost 50% to $2.4 billion by the end of March, according to data from NFT data aggregator CryptoSlam.
Weak projects with loosely tied communities can be partly to blame for the decline in overall NFT sales, according to the founder of Burnt Finance, who goes by the alias Burnt Banksy.
Although total NFT sales are down, blue-chip NFT projects like Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), and Azuki have increased 169%, 199.6%, and about 146% over the past 30 days, respectively, CryptoSlam data showed.
While a number of NFT owners are selling their digital items, others have “strong beliefs” in their NFTs and want to hold onto them, Banksy said. So there has been a rise in NFT lending because owners want to utilize them as assets to gain liquidity and, in turn, generate additional yield elsewhere or purchase more assets, he added.
The NFT loan volume on decentralized lending NFT marketplaces Arcade and NFTfi have increased 171% from $30.63 million in Q4 2021 to $83.17 million in Q1 2022, according to data by Dune Analytics user gideontay.
“The majority of the lending market is focused on the established high-value NFT collections,” Stephen Young, CEO of NFTfi, told TechCrunch. “While overall NFT sales might be down, the top-tier projects still retain considerable value.”
Similar to any other assets, people are lending their NFTs to get liquidity and to maximize their own capital efficiency, Marco Manoppo, research director at Digital Asset Research, told TechCrunch.
“This can be done either via notable crypto brokerages such as Genesis or via decentralized applications that are trying to facilitate NFT lending through smart contracts, abiding by a certain set of parameters to manage the liquidation risks,” he said.
Arcade specializes in providing NFT owners the ability to get a loan by putting up their digital collectibles as collateral, as opposed to having to provide some other asset like a house or car. The company’s platform has about $17 million in loan volumes and more than $25 million in blue-chip NFTs locked in escrow, Gabe Frank, CEO and co-founder of Arcade, said.
“If there’s a slowdown in primary sales for NFTs and lending is picking up, that’s because there’s more awareness and education about what people can do with their NFTs,” Frank said.