You've come to the right place if you've been thinking about starting an NFT loan platform.
NFTs are already big business. Sales of NFT art surpassed the $2 billion mark in 2021, and the market for NFTs has continued to grow. By the end of last year, the NFT market was valued at over $40 billion. So it's clear that it's not just a flash in the pan and that NFTs are here to stay.
We will help you with your NFT project!
NFT loan platforms are the next logical step in the evolution of NFTs, but to build one and gain traction, you need to know what they are and how they work. And so, with that in mind, let's go ahead and take a closer look.
What is an NFT Loan?
One of the significant challenges with owning and investing in NFTs is that it's hard to liquidate your holdings when you need a little cash. NFT loans are designed to combat this problem by allowing you to borrow money by using your NFTs as collateral. It's much like how a regular loan might use a property as collateral.
NFTs are illiquid, so it's not easy to sell them without taking a huge hit by selling them way below their market value. NFT loans aim to combat that, allowing NFT owners to have access to liquid capital without having to sell an NFT at a lower price when they're pretty sure that they're soon going to increase in value.
Of course, in some cases, borrowers take out a loan and then are unable to make their repayments. When that happens, the lender is entitled to keep the NFT that was provided as collateral. It's not too different from remortgaging a house.
Lenders make money in the same way that they do with regular loans. In most cases, they don't actually want to keep the collateral because they'll have the same challenges when selling it. Instead, they want people to make their repayments because they'll charge interest on those loans and ultimately take back more money than they lend out.
How to Start?
One of the things that you'll want to bear in mind is that actually offering NFT loans can be difficult because as well as being hard to liquidate, NFT prices can change rapidly and both increase and decrease over time. Because of this, many lenders offer a low loan-to-value ratio, which you might want to consider yourself if you want to get into the business.
Another thing to bear in mind is that it's not always easy to value NFTs, which can cause complications for both lenders and borrowers. At the moment, there's no easy solution to this, and so it's just something that you'll want to bear in mind.
It would help if you also spent some time getting to know the competition. At the moment, a few of the leading providers include NFTfi, Arcade, and Nexo. You won't necessarily want to duplicate their platforms, but it's worth knowing how they operate.
You'll want to think about how you're going to determine the value of the NFTs that you're backing. Most companies look at previous performance or the lowest price that similar NFTs have sold for. Once you and the borrower agree on terms, the NFT is transferred into escrow, and a smart contract is used to provide the loan.
As with any business, it's also important to think about the pros and cons. For example, the startup cost is relatively low compared to other tech businesses, and you can create the company from home instead of having to hire an office. It's also a growing industry with a huge potential for you to scale.
The downsides include that there are already established competitors, and with the industry evolving so quickly, you'll need to be able to react quickly and constantly reinvest in your platform if you hope to remain relevant.
But we think that the positives outweigh the negatives, and so as long as you've done your competitor research and you're familiar with the space, you're perfectly placed to disrupt the industry. Now you just need a decent development partner.
Our Company Can Help
One of the major challenges of creating an NFT loan platform is that not everyone has the resources available to build their own in-house team of NFT developers. Even if money is no object, it can be difficult to know where to find people because it's still an emerging market.
The good news for you is that at Zfort Group, we've worked on a number of NFT projects, and we'd be more than happy to work with you to make your NFT loan platform a reality. We'll build the solution while you build the business.
And so, if you're interested and you'd like to find out more, be sure to reach out to us. We'd be happy to help!
We will help you with your NFT project!