NFT and decentralized finance (DeFi) asset owners who are interested in putting their assets to work and intend to maximize passive returns without having to sell their holdings may be able to leverage them as collateral.
They may use the funds acquired to benefit from arbitrage opportunities, purchase another asset with significant upside potential, and also avoid margin calls on collateralized debt positions. It may add to the price appreciation, increasing an investor’s aggregate returns in their portfolio.
As the non-fungible token (NFT) market continues to grow, it will require platforms to offer accessible loans for NFTs and other emerging DeFi assets. Traders should have options where they can get more leverage out of their crypto-assets for loans as well as more accessible yield farming opportunities.
There should also be ways where traders and investors can reliably borrow against their DeFi and NFT-focused assets. Additionally, traders need to have reliable options where they can significantly lower the opportunity cost of holding governance or liquidity tokens by putting them up as collateral in order to generate extra yield.
Traders could also benefit from platforms where NFTs may be used as collateral to acquire “trustless” loans. Lending through these channels may be powered by permissionless NFT Lending Pools.
Generating Substantial Yield with Idle Crypto-Assets
Users may also earn with their “idle” or parked assets. An NFT “monetization” platform like Drops allow users to use their NFTs as collateral to secure a trustless loan, or supply stablecoins or governance tokens to fungible token or NFT lending pools and then begin earning competitive APYs.
With Drops, users may be able to get more utility for their NFTs. Drops aim to provide DeFi-style infrastructure for NFTs, adding utility to “idle” NFT assets. Traders or investors may leverage their NFTs to acquire loans and generate substantial yield, thus lowering the opportunity cost of holding NFTs for an extended period of time.
The Drops infrastructure might become more relevant as we begin to see the emergence of “financial” NFTs, which would be a natural progression of the space beyond simple digital artwork into tangible financial instruments.
As mentioned on its website, NFT lending pools on Drops include the pool creators, lenders, and borrowers. Anyone may establish an NFT Lending Pool via Drops by “specifying accepted NFTs and amounts that can be borrowed against them,” the platform’s developers explained.
Users interested in attractive yield are able to supply liquidity to NFT lending pools via Drops and back the digital assets they “believe in,” the developers noted while adding that collectors may supply NFTs with stablecoins and “get matched with the best rates lending pool.”
It Might Be Time to Gain Exposure to DeFi Assets
Most industry analysts and financial professionals agree that gaining exposure to alternative assets should become a key part of a diversified investment portfolio. A few years back, it wasn’t as easy to effectively diversify a digital assets portfolio because the industry was still not mature enough to support more advanced investment strategies.
In February of last year, prior to the global COVID-19 outbreak, the entire DeFi ecosystem was valued at only $1 billion. But now the decentralized finance market has grown exponentially, valued at over $83 billion at the time of writing, according to DeFi Pulse data.
For DeFi to truly reach mainstream adoption, practical liquidity and lending solutions are required so that investors can take advantage of the best trades possible. At present, the NFT space is in its early stages of development and for this niche market to become more globally accessible, we need seamless access to liquidity, which is one of the main focus areas for Drops.
However, the project is still in its early stages of development, which means we’ll have to see how this space matures and whether these new platforms can provide the appropriate supporting infrastructure.