NFT Collateralized Lending

Definition ∞ NFT collateralized lending involves using non-fungible tokens as security to obtain a loan in cryptocurrencies or stablecoins. In this financial arrangement, the borrower pledges their NFT to a lending protocol, receiving liquid assets in return. If the borrower defaults on the loan, the NFT collateral can be liquidated to repay the lender. This mechanism unlocks liquidity for otherwise illiquid digital assets, providing a new utility for non-fungible tokens. It expands the financial applications within the decentralized ecosystem.
Context ∞ NFT collateralized lending is a rapidly developing sector within decentralized finance, frequently featured in news regarding new financial primitives and NFT utility. It addresses the challenge of illiquidity for high-value non-fungible assets, allowing owners to access capital without selling their holdings. Market volatility and accurate NFT valuation remain significant considerations for both lenders and borrowers. The expansion of this lending model contributes to the broader financialization of digital collectibles.