The volume of NFT-backed loans has spiked once again, as borrowers take advantage of their collectibles for quick liquidity.
NFT-backed loans are back with a bang, as January witnessed record figures. 18000 ETH in volume changed hands in NFT-backed loans, a volume not seen since May 2022, when services peaked in the sector.
The digital analysis company eBit Labs wrote a report that showed NFT lending recorded figures not seen since last May, when its volume reached an ATH.
Using loans backed by Bored Ape Yacht Club (BAYC), the report looked at loan price, duration, value, dominance of the market, and liquidation value.
More than $30 million loan in January 2023
This is the first time that weekly loans backed by NFTs have passed 6,000 ETH in nine months. The report said that the first week of January saw a massive boost in the volume of NFT-backed loans. By the end of the month, a total of 18,000 ETH had been borrowed. This is equivalent to $30 million at today’s value.
The report said that the lending industry became prominent when the floor price of most NFT collectibles, such as BAYC, dropped in 2022. It added that the liquidity crisis of 2022 was the result of the crash of NFT floor prices. Liquidation concerns also became rampant among investors.
The report said that one of the top lending platforms, BendDao, operated with a maximum advance rate of 40%. This was prior to the entrance of X2Y2, which introduced an advance rate of 100%, which is well above the 80% offered by most peer-to-peer NFTfi platforms.
The report said that the entrance of X2Y2 in September 2022 contributed to making NFT lending more competitive. BendDao, for instance, currently offers an advance rate of 60%. This is just to remain competitive in the market.
Factors that led to demand in NFT-backed loans
According to eBit Labs, several factors contributed to the January 2023 peak in NFT lending. The report said that the ramping up of activities related to Yuga Labs’ lending on Dookey Dash News was one of the factors. It added that most of the NFT loans were backed by bored apes. The data further showed that most of the loans were liquidated in a couple of days. Those that lasted longer are just a small proportion of the total. It inferred that the borrowers were interested in immediate liquidity. The funds were not used to hedge the risk of market fluctuations.
Meeting a valuable market need
It also showed that most of the borrowers are from the United States, as loan demands peaked during the waking hours of the US time zone. The report continued,
“The availability of NFT lending meets a valuable market need. it helps fuel the ongoing development and sophistication of the entire NFT ecosystem.” Although the reasons for the borrowing are likely diverse, it is clear that these loans can meet both short- and long-term liquidity needs while also providing valuable market-value hedges.