The advent of non-fungible tokens marks a significant revolution in the decentralized space. It redefines and expands the decentralized economy, creates other use cases for blockchain technology, and promotes the transparent and permissionless features of blockchain. One of its greatest potentials is financial and investment opportunities that continue to attract investors and enthusiasts.
NFTs offer a wealth of financial opportunities that have yet to be fully explored and exploited by investors. Despite having been around since 2014, NFTs only entered the mainstream in 2017 and experienced an adoption frenzy in 2021. Approximately $41 billion worth of cryptocurrency was spent on NFTs during this period. This figure is expected to grow exponentially as more NFT projects are implemented.
Unfortunately, acquiring NFTs is expensive; it often takes a small fortune to own these glamorous digital tokens. This has prompted investors, creators, and developers to reveal exciting strategies that can make NFTs affordable for one and all. One of these strategies includes NFT rental.
What is NFT rental?
NFT rental is a short-term rental service that allows the owner of a particular NFT to rent it out to a borrower. This novel strategy allows borrowers to experience the utility of such an NFT during the limited rental time. NFT rental is not a standard feature in all markets, but rather is specific to platforms that adopt DeFi-like protocols to facilitate rentals and ensure that the rented NFT is returned to the rightful owner once the rental period expires. .
Why do I have to rent an NFT?
Renting an NFT may sound frivolous, but the potential of certain digital assets makes it relevant and exciting. As such, renting NFTs is a way to monetize them as a lender, essentially creating another pathway to passive earnings on otherwise dormant digital assets.
Types of rental protocols
Like DeFi lending protocols where cryptocurrencies are borrowed, renting an NFT also incurs charges at an agreed rate. For their part, there are two types of NFT rentals, which are:
Collateralized Rent – Secured NFT rental is when the borrower deposits an agreed level of collateral to secure the NFT. This covers any loss and protects the owner in case the digital asset is misplaced.
Uncollateralized rent – Leasing without a guarantee seems easier and less risky for the owner; no collateral is deposited and NFT owners do not have to give up their digital assets. Instead, it offers a wrapped token backed by the specific NFT that is minted to the tenant. This wrapped NFT will burn when returned.
How NFT rental works
The entire rental protocol is managed by a smart contract that automates all transactions once predefined conditions have been met.
To guaranteed rentals, NFT owners will need to list their NFTs on marketplaces that support rental. Interested parties will then browse the available pool and start the lending process. Once this lending process is activated, said NFT will be locked into a smart contract along with your contract rules.
The contract rules stipulate the duration of the rental, the guarantee and other terms and conditions. Once there is a mutual agreement, the smart contract will execute and transfer the NFT to the borrower. The smart contract also returns the NFT to the owner and the collateral to the borrower after the predefined expiration date or time elapses.
To unguaranteed rents, the procedure is similar to the collateralized counterparty but with an additional option. Since there is no collateral to fall back on or cover the risks, the unsecured lease has a unique option which is not to send the original NFT to the borrower. Instead, the smart contract mints a wrapped NFT backed by the particular NFT for an income and delivers it to the borrower. Immediately after the expiration date and time clocks, the wrapped asset is deposited in the smart contract, which burns it. Meanwhile, several NFT ecosystems have also introduced in-house rental systems where they manage the loaned assets themselves.
It is worth noting that in both transactions, borrowers pay rental fees. Both parties will also be responsible for their respective transaction fees, as defined by the network where the transaction takes place.
As a borrower, NFT leasing allows you to experience various benefits that the leasing NFT has. For example, if you rent NFTs that generate or issue tokens or collectibles that can be sold as NFTs, anything they issue can belong to you if that term is included in the rental smart contract. Additionally, renting NFTs like BAYC and other community-driven NFTs will grant you access to their respective communities during the rental period as a borrower. Therefore, NFT rental is an invaluable way to earn as a lender and a unique way to enjoy and experience the benefits of NFT as a borrower.
What are the Prospective NFTs that can be rented?
Since some NFTs can be rented by enthusiasts or investors who cannot afford them for various purposes, below are examples or classes of NFTs that can be rented.
Metaverse Lands – Metaverse lands are utility NFTs with various economic potentials that allow third parties to develop buildings and experiences. Borrowers can rent such land to host social gatherings, concerts, galas, etc. In addition, users can also develop Metaverse areas with auditoriums for conferences, symposia, or point of sale. It can also be leased to brands seeking booths or outlets in a Metaverse ecosystem during iconic Metaverse events.
digital arts – Since avatars serve as human characters in the virtual world, digital arts such as avatars can be rented to enthusiasts who want to attend Metaverse events. Meanwhile, digital arts extend beyond avatars; they also include rare pieces of drawings and photographs. Such digital arts can be rented to embellish event hubs in the Metaverse.
In-game collectibles – In Play to Win (P2E) games, players can earn in-game collectibles as rewards for clearing different stages and levels. These collectibles, such as accessories, weapons, or potions, can be used to help players progress through the game. Also, they can be rented to other players who want to use them to win a stage in their own gaming experience.especially with special items like guns, swords, daggers, and armor.
Music and Art NFTs: Music is another booming niche in the NFT space. As music artists release their music videos and audio as NFTs, such NFTs can be rented out to those who cannot afford them. In the case of artistic NFTs, special NFTs with real-world utilities, such as VeeFriend collections, can also be rented to users who want to experience real-world use cases.
Where can I rent NFT?
Several markets offer NFT rentals; notable ones and their supported networks include
- IQ protocol (compatible with Polygon and BNB networks)
- vera (compatible with Ethereum, Polygon, Solana and BNB networks)
- To challenge (compatible with Polygon and BNB networks)
- grass protocol (compatible with BNB smart chain)
- dark blocks (compatible with Ethereum, Solana, Polygon, Avalanche and Tezos)
- ReNFT (compatible with Ethereum, Polygon, Solana and Avalanche networks)
- zhartha (compatible with the Ethereum blockchain)
- Renfta (Skale network compatible)
Conclution
NFT rental is another strategic concept that adds utility to all NFTs. It allows NFT owners to lend their idle NFTs to investors or users looking to experience their profits. In addition to generating passive income for NFT owners, the rental opens avenues for collaboration and promotes P2P transactions within the NFT space. Increases the range of NFTs and their economy.
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*All investment/financial opinions expressed by NFT Plazas come from the personal research and experience of our site moderators and are intended for educational purposes only. People are required to fully research any product before making any type of investment.
Technical writer, enthusiast of all things blockchain and the decentralized world.
