With the market for non-fungible tokens (NFTs) hitting new records every day, the question of the market’s liquidity prevails. Although the overall number of NFT transactions recently increased dramatically, the prospects for selling any personal NFTs on the secondary market today remains grim.
Financial platform Drops announced the upcoming launch of its NFT lending platform today. The testnet is set to mark the initial phase of its mainnet launch. The Drops NFT lending ecosystem seeks to bridge the liquidity gap in NFT markets by enabling participants to use their metaverse items as loan collateral.
Bringing DeFi to NFT
Drops are optimistic about tapping into the growing ecosystem to provide much-needed liquidity solutions. The Drops NFT lending platform introduces an avenue to collateralize idle NFTs, creating a more liquid market in which users can obtain loans and earn an extra yield.
For the first time, users will be able to leverage their NFT assets to obtain loans and earn yield, significantly reducing the opportunity cost of holding them long-term. The Drops protocol leverages permissionless lending pools, enabling digital assets. Such assets include NFT collectibles, metaverse items, financial NFTs, and DeFi assets as loan collateral.
This groundbreaking project unlocks the additional value of the market by bringing a DeFi-style infrastructure to NFTs, providing the necessary utility for otherwise-idle NFT assets. This type of infrastructure will become extremely important in the near future. The market is currently witnessing the rise of “financial” NFTs, expanding the space from digital art into more tangible financial instruments.
Darius Kozlovskis, founder & CEO of Drops, celebrated this innovative lending model, designed to introduce liquidity in the NFT market by utilizing the best of DeFi.
"NFTs have become the center stage of crypto discussions in the past few months. However, the latest crypto market crash revealed underlying liquidity issues in this upcoming niche. By bridging the metaverse world with Decentralized Finance (DeFi). In doing so, we believe that NFT owners can derive more value from their idle assets."
Joining the Ecosystem
The Drops lending platform currently has a total value locked (TVL) of $6.2 million, a figure that will likely increase as more metaverse participants join the Drops community.
The platform will be rolled out in three phases, kicking off with the testnet, which will then be followed by an audit, and finally, the mainnet release. NFT owners who wish to participate can submit an application form, after which they will be guided through how to take part in the Drops NFT Loans testnet.
Drops will leverage its native tokens, dNFT and dTokens, to represent NFT collaterals supplied to the platform’s permissionless pools. NFT owners who add their digital assets to a particular pool can use the native tokens to borrow from the markets, or to repay outstanding debts. As for collateral, each market will have a factor ranging from 0 to 1 representing the portion of the underlying asset value that can be borrowed.
"We are excited about the future of the metaverse given its potential in building global digital communities. The Drops NFT lending platform provides a perfect starting point to contribute towards the growth of the metaverse. In future, we anticipate integrating more DeFi opportunities to support the mainstream adoption of NFTs and digital ecosystems."
On The Flipside
- The much hyped NFT market is difficult to predict. Using NFTs as a financial instrument has not yet been fully explored, which means that the search for new ways NFTs can be used to access capital and generate income will become huge in the coming years.
Why You Should Care?
Despite NFT’s total market cap and sales volumes growing exponentially, NFT asset utility remains limited compared to assets in the DeFi space. By combining NFTs with DeFi, Drops, and building on a Layer-2 scaling solution, Drops is positioning itself to revolutionize the future of NFT assets and how they are used.