Blue-chip collateral helps stabilize NFT lending: Paraspace
According to a recent report published by nonfungible token money market protocol Paraspace and multichain wallet BitKeep, the current amount of NFT lending and lending, or NFTFi lending, has passed $430 million across 43,521 borrowers. The highest percentage of collateral included the most popular NFT collections, such as Wrapped CryptoPunks, Bored Ape Yacht Club and Mutant Ape Yacht Club.
Researchers at Paraspace and BitKeep said NFTFi added $25 million in outstanding loans from January to March. Also contributing was the introduction of a digital collectibles lending protocol by NFT marketplace Blur, which surpassed $16 million in loans one day after launch, led by Taiwanese celebrity Machi Big Brother. Yet the real driving force was the invention of Bitcoin Ordinals, which boosted the total NFT market transaction volume to $1.5 billion in March, but shrank to $330 million in May. Despite the growth, researchers from Paraspace and BitKeep warned that liquidity issues remain a constant theme in the sector:
“The lack of liquidity in NFT trading is mainly due to limited number of users, difficulties with pricing and high NFT prices. We thus observe two extreme scenarios where the TOP 10 NFTs maintain a certain level of liquidity with little fluctuation between projects, while other NFTs are sold with discounts.”
In a statement to Cointelegraph, Paraspace NFT developers explained that despite accumulating over $280 million in NFT loans, the protocol only had 16 NFT liquidations without bad debt since its inception last year. Developers say it owes its success to rules that allow only the most established and highly liquid, or blue-chip, NFTs to be pledged as collateral. The entry threshold for blue-chip NFTs is often very high, with an average price range between $11,000 to $120,000.
Typically, users can only borrow ETH against a single NFT. For us, users can use a basket of NFT + ERC20 (3 BAYC + 1 AZUKI + 2 BTC) to borrow fundraising funds (say 10 ETH + 10 USDT + 100 APE). This gives our platform an opportunity to pool liquidity in one place and thus increase capital efficiency for liquidity
Still, both developers at Paraspace and BitKeep warned that the NFTs are a new market “that lacks historical data and universally recognized valuation analysis methods, resulting in pricing difficulties.” As a result, different perceptions of rarity based on subjective views have led to large price discrepancies even within the same NFT series. On the market’s future prospects, developers commented:
“High-quality NFTs often have strong community consensus, team backgrounds and distinctive artistic styles. However, the barriers for ordinary users to participate in blue-chip or popular NFTs are increasing. Today, some solutions have emerged, such as NFT fractionalization , NFT staking, and the rise of NFT liquidity platforms.”
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