Explained: NFT Loans and How They Work
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Two aspects of the cryptoverse are gaining popularity — NFTs and DeFi. NFTs, or non-fungible tokens, are a class of crypto assets that can’t be replicated or replaced.
They’ve become a controversial topic, thanks to recent headlines about NFT projects selling for staggering amounts of money.
DeFi, or decentralized finance, refers to blockchain platforms that offer crypto investors financial products and services without the oversight of banks or financial institutions. These platforms enable anyone with an internet connection to borrow, lend or trade crypto assets in minutes without requiring approval from a centralized authority.
DeFi applications are easy to understand in the context of cryptocurrencies like Bitcoin or Ether. But how do NFTs — which aren’t divisible, and therefore can’t be easily traded — fit in the picture? The answer is NFT loans. Valuable NFTs can be used as collateral for acquiring loans, just as with a house, car, boat or stocks.
Merging DeFi with NFTs is opening up a whole new economy for this emerging class of crypto assets. In this guide, we’re going to explore how NFT loans work, and take a look at some existing platforms that have made strides in the NFT/DeFi space.