A closer look on types and benefits of NFT renting, and the marketplaces where anyone can rent their NFTs.
Have you ever dreamed of owning an NFT from the Bored Ape collection? You must be thinking that everyone who shows off with their CryptoPunk NFTs must be either super lucky to buy early or swimming in money. Well, that is not exactly the case. There is an emerging secondary economy in the NFT industry. Here, is everything you need to know about renting NFTs.
What is NFT Renting?
Conceptually it is quite similar to renting a physical object like a car or a DVD. You possess it for a limited amount of time and enjoy the benefits meanwhile. One major difference is that NFT renting is executed via smart contracts. The lender and the borrower agree on terms and conditions such as the duration, price, and utilities. When the contract expires, the NFT is returned back to the original holder.
Why would anyone rent NFTs?
There are obvious benefits for both sides. From the lender’s perspective, renting NFTs is a source of passive income. NFTs are quite high in demand but to possess them requires a significant financial investment. So, in general, the NFT market is quite exclusive. Moreover, many NFTs come with other utilities such as profit sharing, tickets to events, community airdrops, and voting rights in a DAO. The opportunity cost of not using these utilities is tremendous. Therefore, if an investor is not interested in taking advantage of the utilities but would like to hold the NFT for future benefits, renting is a great option.
On the other hand, the incentives behind being a borrower vary widely.
- The most common reason is the high cost of attaining NFTs. Not everyone can pay thousands of dollars for a digital asset or utility. However, many can afford to rent NFTs for a shorter period of time and experience being a holder.
- Another valid reason is to be afraid of purchasing an obsolete piece. The NFT market is evolving rapidly and trends can change swiftly. Paying a high price for an asset that can go old repels many investors. The fear of “fast fashion” creates a need for renting NFTs.
- Also, some borrowers desire to try the experience before buying in. Having a chance to experience the community and utilities before investing is helpful to make a satisfactory decision.
Different Types of NFT Renting
All rental procedures are processed via smart contracts. However, the main distinction is the use of collaterals.
Similar to paying a deposit on a house, some NFT lenders ask for collateral. Mostly the value of the collateral is quite high (higher than the price of the NFT). On top of this, the renter must pay the rental fee of the NFT and its utilities. Due to the collateral prices and the complexity of the contract, this renting method is preferred less among borrowers.
Also known as collateral-free renting, this method takes advantage of wrapped tokens. With collateral-less renting, the NFT never actually ends up in the borrower’s wallet. Instead, a wrapped token of the borrowed NFT is minted. A wrapped token is an asset designed to be utilized on a non-native blockchain and is backed by the original NFT. When the contract expires, this wrapped token is destroyed by the smart contract. Thanks to this technology, borrowers are not required to deposit any collateral. So, they can enter the deal more freely.
Where can I rent NFTs?
There are NFT marketplaces enabling their rentals. These platforms use Defi and blockchain technologies to facilitate secure transactions and guarantee the truthful execution of smart contracts. The most known ones are reNFT, UnitBox DAO, and IQ Protocol with huge databases of lenders and borrowers.
How NFT rentals are changing GameFi?
NFT rentals can help the GameFi industry grow exponentially. The play-to-earn business model has been rewarding successful gamers with NFTs from wearables to character skills. Selling such items are common practice. However, renting NFTs while not playing can be more profitable. For instance, an American player can rent his/her NFT items while sleeping which is daytime in Europe. This could create a stream of passive income for gamers. Considering these, renting NFTs is likely to be widely common in the GameFi sector.