NFTs are hotter than ever. While this developing industry actually turned seven this year (the world’s first-ever NFT was issued in 2014), adoption of this new class of digital assets only began to take off during 2021 – which history will reflect upon as the “Year of the NFT.”
These days, NFTs are everywhere – shilled from every corner of the world, and in endless streams of Twitter threads. From
For observers both inside and outside of the crypto industry, these statistics are mind-boggling. But even more eye-popping still is the fact that with the industry still in its infancy stages, NFTs still have an incredible way to go.
The possibilities enabled by this technology give the industry a runway so long and so deep, that it is virtually impossible to know how large this market will eventually become.
History will remember 2021 as the year that the NFT ownership economy was introduced to the world. However, the subsequent years will introduce another story, as a new economy begins to emerge off the backs of NFTs. This story, which revolves around NFT borrowing, will introduce and make available even more NFTs to the people – and will lift the entire industry to unimaginable heights.
Introducing NFT Renting – Bringing NFTs to the Masses
Conceptually, NFT renting is as simple as its name suggests. Individuals who do not own a particular NFT, but would either like to use it or experience it for a limited time, may go out to a relevant platform that supports NFT rentals, and rent it.
In practice, the execution can operate in at least two different ways.
Method One (Collateralized Lending):
Owners can list their digital assets on a marketplace that is configured for NFT lending and borrowing. Interested renters who come across a particular NFT of interest, can then initiate the NFT borrowing process. The NFT is then deposited into a smart contract, with the terms of the contract defined between the lender and the borrower.
To protect the lender and their asset, the borrower is required to deposit collateral – likely exceeding the value of the NFT. The value of each NFT is likely verified using price oracles. In addition, the renter will also need to pay a rental fee – to cover the cost of borrowing the NFT.
These terms are formalized in a smart contract, which will include other pertinent details, such as rental duration and other terms & conditions (e.g. returning before the contract expires, required collateral, etc…). Upon agreement between the lender and renter on all of the parameters of the smart contract, the contract goes into effect. NFT renting as begun - the NFT passes to the borrower, who can then enjoy using the asset for the duration of the contract.
When the contract expiration date arrives, the smart contract executes and returns the NFT back to its original owner. The NFT lending process concludes as collateral is released and then returned back to the borrower.
Method Two (🔥 Collateral-less Renting):
NFT rentals can happen in a second, albeit similar way – although in this second scenario, the process of renting is greatly simplified, and both asset holders and renters enjoy two benefits. For lenders, method two offers an option where the original NFT never actually enters the hands of the renter, while at the same time, individuals who borrow do not need to put up collateral – thereby minimizing impact to their financial assets.
NFT borrowing without the need for collateral begins in much the same way as when collateral is needed. NFT owners list their assets on a marketplace that supports NFT rentals, and individuals who come across the asset and are interested can initiate the NFT renting process. The NFT is then deposited into a smart contract, with the terms of the contract defined between the lender and the borrower.
Here, the process deviates.
In a collateral-less renting arrangement, a wrapped version of the original NFT is minted. This wrapped NFT carries all of the same characteristics and attributes of the original asset and is, of course, backed by that asset.
The lender and borrower agree upon a rental price and rental duration. The rental price is paid, along with fees related to incentives, and the smart contract goes into effect –issuing the wrapped NFT to the borrower. Upon the end of the smart contract, the wrapped NFT is returned to the contract – which, in effect, burns the wrapped asset. The incentive fees which were part of the original payment become the earnings for liquidity providers (those who stake the asset into the renting pool).
The Different Types of NFT Renting – A Sample of Possibilities
Without having to spend too much time, one can quickly see the possibilities which are enabled through the renting of NFTs. At its most basic level, the NFT rental industry will open up access to individuals who would like to experience a specific NFT which they cannot otherwise afford. This is similar to renting a race car for a day, in light of the fact that the average person cannot shell out half a million dollars to buy one for themselves.
At a more granular level, NFT renting opens up a secondary economy in the NFT industry.
Many NFTs today are sitting idle in crypto wallets – unused by their owners for the majority of the day (or for even weeks and months on end). While these owners are not using their assets, they also have no interest in letting them go. By that extension, any utility that the digital asset could otherwise generate is wasted – sitting unused in the wallet.
By enabling NFT lending and borrowing capabilities, owners can put their assets to work. Furthermore, with the introduction of NFT rentals in a collateral-less manner, owners can sleep soundly knowing that their original asset remains safe in a smart contract – and not actually in the hands of the borrower.
Available only from IQ Labs, this unique solution is made possible via IQ’s flagship product, the IQ Protocol. With IQ Protocol, NFT lenders and borrowers can both benefit – with owners knowing their assets are safe, and with renters requiring fewer funds to enjoy the borrowed asset.
The Gaming Industry and the Growing Metaverse
As with many technological advances, the gaming industry typically is one of the first adopters of new technologies and ways of working. This trend continues with the advent of NFT rentals. In the past, game economies were a closed ecosystem – players would spend hours playing and earning in-game assets, never being able to monetize them within or off of the platform. This changes with NFTs, and changes further with NFT renting.
With NFTs, for the first time can take their in-game assets to a marketplace, and sell them for real earnings. Better still, players who want to earn on their existing assets can put the same NFTs on a marketplace supporting NFT borrowing, and earning money while they sleep.
From digital swords to in-game swag, there is nothing that a borrower cannot rent so long as the object is represented as an NFT.
Going beyond gaming, the basic building blocks of the Metaverseare are to emerge. With physical land in the real world already claimed long ago by nations and a few ultra-wealthy individuals, the next land grab is happening in the digital world. As early adopters begin buying up land parcels within the gaming and metaverse-focused platforms, an NFT land rental industry will soon emerge.
As individuals spend more time in the digital world, they will be opening businesses, spending time in a “digital home”, and more. NFT land rentals will allow future participants in these economies to set up the necessary infrastructure to enjoy their time online. Whether a store needs to be built on an existing parcel of land, or a virtual home needs to be built on a remote digital island, NFT land renting will soon create digital landlords and NFT land renters.
The Art Industry
At no time in history has digital art been more famous than during 2021. Beeple’s collections clearly are the front-runner, collectively bringing in more than 100 million USD in sales and single-handedly introducing digital art to the mainstream. Besides his collections, other artists are also beginning to make their mark – and in the coming years will likely also position themselves to sell their pieces for hundreds of thousands, if not millions, of dollars.
Owning one of these art pieces, which are in a rarified space – will be out of reach for most individuals. But with the advent of NFT renting, just maybe a user with a modest income can rent one of these art pieces for a day – as he/she hosts an online party in the digital world.
NFTs Come to Music
Music streaming services make music virtually a free consumable good these days – with the artists behind these creations earning fractions of pennies on the US dollar. These days are numbered, as the rise of NFTs finally gives content and music creators some of the content control which has long been missing in the creator economy.
NFT music files and music videos will soon be available to the masses. Artists who do not wish to drop their latest singles “for free” on streaming platforms will require their fans to pay to listen to their content. Music videos will no longer be posted for free, but gated via limited edition NFTs. Fans who wish to view the music video may be able to buy them directly from the artist or from another seller, or they may leverage the possibilities enabled by NFT rentals, buy renting the song directly from an NFT holder. Finally, a business model where the creator benefits and the fan can directly support the content creator can come to life.
Avatars in the Metaverse
CryptoPunks, Bored Apes, and more – NFT avatars such as these were the other big winners in the NFT world for 2021. With the growing emergence of the metaverse, and the increasing role that such avatars will play in it – an NFT lending economy focused on avatars is certain to arise in the coming years. Further, avatars will eventually become more complex – wearing different clothes, carrying different accessories, and more. These other NFTs – for which there will be a traditional and rental economy, will also soon take off.
The Future of NFT Renting
NFTs are here to stay. In all likelihood, they will impact all industries in varying degrees in the years to come. As a result, the NFT rental industry is poised to take off – enabling all participants in the Web3 economy to obtain access to virtually any NFT – regardless of the underlying value of the original asset.
From lenders to borrowers, and even the NFTs themselves, every party stands to win. NFT lenders can earn on their otherwise dormant assets, NFT borrowers can leverage certain assets for a limited time to achieve a certain objective at a point in time, and the NFTs will be used in the way that they were built and meant to be used.
In preparation for this impending shift, the DeFi framework -- IQ Protocol -- will support all customers and across all industries. IQ offers an efficient product that helps lenders and borrowers to benefit from the renting process even more – by ensuring that the original asset stays safe, and by limiting the number of funds that the borrower needs to put up prior to renting the asset. As the first to market with such a solution, IQ is ready to meet all of the needs related to asset and NFT lending and borrowing on the blockchain.