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According to a recent report published by the Paraspace non-fungible token money market protocol and BitKeep multi-chain wallet, the current amount of NFT borrowings and loans or NFTFi loans exceeded $430 million for 43,521 borrowers. The most popular NFT collections such as Wrapped CryptoPunks, Bored Ape Yacht Club and Mutant Ape Yacht Club made up the largest share of pledges.
Researchers from Paraspace and BitKeep said NFTFi increased outstanding loans by $25 million between January and March. Also aided was the introduction of NFT Blur’s digital collection lending protocol, which surpassed $16 million in loans a day after launch, led by Taiwanese celebrity Machi Big Brother. However, the real push came with the invention of Bitcoin Ordinals, which boosted the total transaction volume of the NFT market to $1.5 billion in March but dropped to $330 million in May. However, despite the rise, Paraspace and BitKeep researchers warned that liquidity concerns remain a recurring theme in the sector:
“The lack of liquidity in NFT trading is mainly caused by the limited number of users, pricing difficulties and high NFT prices. Thus, we see two extreme scenarios where the top 10 NFTs maintain a certain level of liquidity with little fluctuation between projects, while other NFTs are discounted.”
In a statement to Cointelegraph, Paraspace NFT developers explained that despite accumulating over $280 million in NFT loans, the protocol has only had 16 bad debt-free NFT liquidations since it began operations last year. Developers say it owes its success to regulations that allow only the most established and highly liquid NFTs, or blue chips, to be used as collateral. The entry threshold for blue chip NFTs is often very high, with an average price range of $11,000 to $120,000.
As a rule, users can only take ETH for one NFT. For us, users can use an NFT + ERC20 basket (3 BAYC + 1 AZUKI + 2 BTC) to borrow collectible assets (say 10 ETH + 10 USDT + 100 APE). This gives our platform the ability to aggregate liquidity in one place and thus increase the efficiency of using capital for liquidity.
However, both the developers at Paraspace and BitKeep have warned that NFT is a new market “that lacks historical data and generally accepted methods of valuation analysis, leading to pricing difficulties.” As a result, different perceptions of rarity based on subjective views have led to large price fluctuations even within the same series of NFTs. Regarding the future prospects of the market, the developers commented:
“High-quality NFTs often have strong community consensus, team expertise, and distinctive art styles. However, the barriers to ordinary users participating in blue chips or popular NFTs are growing. Some solutions have now emerged, such as NFT fractionation, NFT staking, and the rise of NFT liquidity platforms.”
Over the past two days @ParaSpace_NFT welcomed back 90 supporters who rediscovered the magic. Additionally, we witnessed an increase in TVL of $5.2M.
Thank you all for your continued support and trust. Together, we’re building something incredible.
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— ParaSpace (@ParaSpace_NFT) May 24, 2023