🖼️ NFT Loans NFT Loans
A way for an NFT owner to borrow crypto (often ETH or a stablecoin) by locking the NFT as collateral, without selling it. Repay the loan and you get the NFT back; default and it goes to the lender.
🏦 The simple version — pawning a digital collectible
Think of a pawn shop or a home-equity loan. You own something valuable (a watch, a house) and you need cash, but you don't want to sell it. So you hand it over as a guarantee, borrow against it, and pay the loan back later to get it returned. NFT loans are the digital version. You lock your NFT in a smart contract, a lender sends you crypto, and you repay to keep the NFT. Miss the deadline and the NFT goes to the lender instead.
🔒 What happens inside the contract?
When the loan starts, the NFT is locked and the contract records the loan amount, interest, duration, and the trigger that ends it badly (liquidation). While it's locked, you can't sell or move the NFT. Two outcomes:
| What you do | What happens |
|---|---|
| ✅ Repay the loan plus interest on time | The contract unlocks and returns your NFT |
| ❌ Fail to repay (or the floor price crashes) | Liquidation: the NFT is transferred or auctioned to the lender |
📊 Three numbers beginners keep seeing
- 📐 Loan-to-value (LTV) — how much you can borrow against the NFT's value. Borrowers typically get only about 30–50% (the exact range varies by platform), so the lender has a buffer if prices drop
- ❤️ Liquidation ratio / health factor — the line that, once crossed, triggers liquidation. Watch it like a fuel gauge
- 📉 Floor price — the lowest current price for the collection, used as a conservative reference value for your NFT. If the floor falls, your loan gets riskier even if you do nothing
🔀 Two ways it's set up
| Model | How it works | Example |
|---|---|---|
| 🤝 Peer-to-peer | One individual lender funds your loan with custom terms. NFTfi historically charged lenders about 5% on the interest earned | NFTfi |
| 🏊 Peer-to-pool | You draw instantly from a shared liquidity pool. An oracle (often Chainlink) reads the OpenSea floor price to value your NFT | BendDAO |
💧 Why anyone uses this
An NFT is usually illiquid (hard to sell fast at a fair price). A loan unlocks cash from one that's just sitting in your wallet, without giving up ownership or future upside. You meet this in the “NFTFi” corner of DeFi, usually when a holder wants liquidity but doesn't want to part with a prized collectible.
🚨 Things beginners should know
- 📉 Floor price risk — a fast crash can push your loan past the liquidation line and cost you the NFT
- 🌊 Illiquidity cascade — in 2022, falling Bored Ape floor prices pushed BendDAO loans toward mass liquidation; the project held emergency votes and lowered its liquidation threshold from 85% to 70%. Illiquid NFTs can trigger a chain reaction
- ⚙️ Smart-contract risk — the code holding your NFT can have bugs or exploits
- 🚫 Borrow small — taking the maximum loan leaves no room for the price to wobble before liquidation
❓ FAQ
- Can I still use or sell my NFT while it's collateral?
- No. Once the NFT is locked in the loan contract, you can't sell or transfer it until you repay. You keep ownership on paper, but the NFT itself is held until the loan is settled or liquidated.
- Why can I only borrow a fraction of my NFT's value?
- Borrowers usually get only about 30 to 50 percent of the value, depending on the platform. NFT prices swing hard, so lenders keep a buffer. If the price falls, the collateral still needs to cover the loan they sent you.
- Can I lose my NFT even if I never miss a payment?
- Yes. If the collection's floor price drops far enough, the loan can be liquidated automatically and the NFT goes to the lender. The risk is market-driven, not just about whether you repay on time.