Chinese e-commerce behemoth Alibaba has surprised the crypto world by launching a non-fungible token marketplace. According to the South China Morning Post, Alibaba’s NFT marketplace not only allows users to buy and sell NFTs, but also license intellectual property (IP) copyrighted by blockchain technology. The marketplace is targeting creators such as musicians, writers, artists and game developers.
A multi-billion dollar market
NFTs sold on Alibaba’s Auction marketplace will be minted on the “New Copyright Blockchain” operated by the Sichuan Blockchain Association Copyright Committee.
The Chinese government has cracked down on cryptocurrencies, but it is bullish on blockchain technology. By allowing Alibaba to sell NFTs, Chinese authorities are facilitating the integration of blockchain into key industries as part of their long-term vision to become the world’s leading blockchain power by 2025.
Alibaba has jumped into a crowded but rapidly growing sector. It would face challenges from players like OpenSea, Rarible, Makersplace, and others. The Chinese giant will be trying hard to dominate the market by bringing NFTs to the masses.
According to data compiled by DappRadar, NFT sales volume skyrocketed from just $13.7 million in the first half of 2020 to a staggering $2.5 billion in the first half of 2021. As NFTs continue to advance in terms of sales volumes and adoption, the crypto community needs a sustainable and effective way to get the most out of these assets.
Putting NFTs to work
With more people getting their hands on non-fungible tokens (NFTs), there is a growing need to put these assets to work to reduce the opportunity cost of holding them. The thing with NFTs is that once you have sold them, you may never be able to get them back. So, you may choose to keep them for a long time.
Many people buy collectible NFTs with the intention of selling them at a higher price later. But what if you don’t want to sell your prized possession? What if you want to access financing without having to sell the NFTs? Maybe to buy the dip, take advantage of arbitrage opportunities, avoid margin calls on collateralized debt positions, or do something else.
Fortunately for such users, there are marketplaces that facilitate trustless loans against NFT assets. You can deposit your NFT as collateral to access liquidity. Lenders can provide loans with confidence because in the worst case such as foreclosure, they would receive the NFT that was deposited as collateral. People looking for yield can supply liquidity to NFT lending pools and back the assets they believe in.
Drops is a peer-to-peer, non-custodial marketplace where you can borrow against your NFTs and earn returns on your idle NFTs. It facilitates instant NFT loans with high liquidity. Drops uses Chainlink Price Feeds to determine the value of NFTs and then mints ERC20 tokens representing the NFT. The same Chainlink Price Feeds are used to monitor the loan-to-value (LTV) ratio of users to ensure that it is maintained throughout the duration of the loan.
The ERC20 tokens are staked as collateral against which you can obtain loans. When borrowers pay off the loan with interest, they get the same NFT that they had deposited as collateral, not another NFT of similar value.
Some NFT owners also rent their assets out for a fee. If you own collectible NFTs that you don’t want to sell, you can make some money in the meantime by renting them out. People who want access to your NFTs can borrow them for a fraction of the cost of buying them outright.
Platforms like Yiedl Finance and Flow have the “rent” functionality on their marketplaces. As an NFT owner, you get to determine the rental price, duration, and the NFT price. Borrowers will have to put the NFT price as collateral before they can rent it, removing the risk of theft.
Wrapping it up
As non-fungible tokens gain more prominence and limelight, they will expand far beyond digital art and collectibles. The growing popularity of NFTs has encouraged investors to explore the opportunity of accessing liquidity and generating yield while holding their NFT assets for the long-term. And this is just the beginning!