NFT holders are using their digital art as collateral to borrow record amounts of cryptocurrency
- DeFi protocol NFTfi reported a record amount of borrowing using NFTs as collateral in January.
- NFTs boomed in popularity in 2021 and early 2022 but have since seen trading volumes crash.
Non-fungible token holders are borrowing against their NFT collections at the highest rate ever.
Data from NFTfi, a DeFi protocol that lets NFT holders list their items as collateral for crypto loans, counted a record 4,399 loans, totaling 18,000 ether tokens, disbursed in January. That's almost double the previous high of 2,481 loans made in March 2022, per a report from The Defiant.
The spike in borrowing comes amid a months-long collapse in NFT trading volume following the huge enthusiasm in the space seen in 2021 and early 2022, when assets from popular collections like Bored Ape Yacht Club traded at massive premiums.
NFTs can range from digital pictures and art to music, and are purchased using cryptocurrency. While it's possible to download a file or screenshot an image, purchasing an NFT gives a holder ownership of the item on the blockchain.
Adjusted for market manipulation tactics like wash trading, NFT trading volumes are down about 75% from all-time highs. But considering that the price of ether — the primary crypto used for NFT purchases — has cratered 46% from a year ago, the decline in volumes is less dramatic.
Crypto markets are still recovering from the FTX fallout and the year-long bear market that hit in 2022. However, token prices are on the rise again, with bitcoin up nearly 40% year-to-date.
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