The once vibrant market, buzzing with activity and skyrocketing prices, has hit a rough patch. The NFT market, known for its volatility, has taken a downturn, with once-coveted digital assets like the Bored Ape Yacht Club NFTs losing their luster and creators seeing their royalty streams drying up. Amidst this backdrop of market blues, however, there have been some intriguing developments in the DeFi space, where NFTs are being used in innovative ways. Let’s delve into the details.
The Luxury Watch as Collateral in DeFi
In a groovy twist of events, a DeFi borrower got down with a luxury watch-backed NFT, using it as collateral for a loan. This innovative approach to lending and borrowing was facilitated by the DeFi project guru, CirrusNFT, who explained how a user managed to score a cool $35,000 loan from another user, all by using an NFT that was the digital twin of a real-world item as collateral for the loan.
The user shipped a swanky Patek Phillipe timepiece to 4K Protocol, an escrow outfit that’s all about NFTs backed by tangible goods. The company then flipped back an NFT that was the digital deed to the watch. This NFT was then put on the block on the DeFi lending platform, Arcade. After the item hit the virtual shelves, lenders started a bidding war to win over the borrower. The user then snagged the best loan deal they could find.
This process opens up the floodgates to more global liquidity, which could mean more competitive rates. However, not everyone was vibing with this fresh way of lending and borrowing, with some critics saying it’s too centralized and that NFTs are being shoehorned in where they’re not needed.
The Declining NFT Market
The NFT market, once a bustling bazaar of digital trade, is now more like a ghost town. The blue chips of the NFT universe, the cream of the crop – Bored Apes, Azuki, Doodles – are seeing their floor prices hit rock bottom. Some NFT collections are trading at their lowest prices in years, painting a grim picture of the current state of affairs.
The Bored Apes, once the Beyoncés of the digital art scene, have taken a nosedive, down 88% from their peak in April 2022. Azuki, another high-flying NFT collection, has taken a chilly dip, dropping 59% in just the past week.
Source: The Block
So, what’s the lowdown? It can be summed up in one word – liquidations. Over the past weekend, the NFT loan market saw a whopping 1,200 liquidations. These are investors who used NFTs as collateral for loans. To put this into perspective, a typical day sees about 10-15 liquidations.
Related article: Physical, phygital and other types of NFTs: short overview
To add fuel to the fire, there’s a shortage of new buyers. It’s just the same players clutching their same bags. Until there’s a new spark that brings in a fresh wave of users, it’s going to be a bumpy ride in NFTville.
In the kingdom of royal headaches, NFT creators are making less dough from secondary sales than they have in two years. Royalty payments peaked in April 2022, reaching a mind-blowing 28,000 ETH (nearly $76 million) for creators in one week. Fast forward to June, and the best week saw creators collectively earn a measly 2,000 ETH, or about $3.8 million.
As competition among NFT marketplaces has heated up, many of the most popular platforms have changed their policies on enforcing royalty payments to stay afloat. Two of the largest NFT marketplaces, Blur and OpenSea, had a bit of a tiff earlier this year but settled on enforcing a minimum royalty payment of 0.5%. In both cases, collectors have the option to pay more royalties, though it appears that this practice is as common as a unicorn sighting.
As you see, NFTs can be used in unique ways, such as collateral for loans in DeFi, while also being subject to market downturns. As the digital world continues to evolve, it’s clear that the NFT rollercoaster is far from over. Whether it’s a thrilling ride or a dizzying tumble, one thing’s for sure: the world of NFTs never fails to surprise.
Featured image was taken from Wishu.io