The current limitations of the peer-to-peer NFT lending and borrowing platforms are quite obvious. They’re usually very slow and P2P services just don’t have enough liquidity. Their underlying infrastructure is also not always interoperable with different token formats or protocols. Moreover, they can generate a lot of friction by design, which can negatively impact the user experience (UX).
P2P NFT platforms are also not very good at matching suitable lenders with reliable borrowers. In many ways, it can be argued that peer-to-peer NFT solutions are similar to traditional P2P platforms for lending and borrowing. While they seem like a great idea, experienced P2P investors will tell you that these types of services simply do not scale too well. That’s why they can’t effectively serve a large number of users with a diverse set of requirements.
Frictionless Transactions With Permissionless NFT Lending Pools
Permissionless NFT lending pools could be a potential solution to streamline the process. By allowing anyone to access an NFT platform, it could be possible to remove a lot of the friction and expedite the process of lending and borrowing.
It’s worth noting that NFTs are non-fungible and they are markets with a lot less liquidity in them, which can make real price discovery quite challenging. However, permissionless NFT lending pools, like those provided by projects such as Drops, can make it easier for liquidity to flow through the platform.
As most investors would know, the traditional art and collectible markets are more “liquidity-starved” when compared to the equity, gold markets, and other asset classes.
And this issue is even more common in the nascent NFT markets. It may take a very long time to properly match buyers and sellers (or lenders and borrowers). Without access to sufficient liquidity, NFT owners might be left with no choice, except to sell their digital collectibles at very low prices if they need the money urgently.
Drops offers a publicly-accessible, permissionless NFT lending and borrowing platform. It allows lenders to join an existing lending pool that suits their goals and terms, or create an entirely new one by choosing what NFTs they’ll accept and the amount that can be borrowed against those NFTs. Borrowers can deposit their NFTs as collateral in the relevant pool to borrow up to 80% of the value of their asset and get an instant permissionless loan from the Drops lending pool.
Other projects have also begun to acknowledge the difficulty of matching lenders and borrowers in a P2P marketplace. Stater is an NFT marketplace that primarily focuses on peer-to-peer transactions. Now it has started giving users the option to quickly get a loan from an NFT lending pool. However, Stater’s permissionless NFT lending pools are limited to only specific assets.
Prioritizing User Experience
Permissionless NFT lending pools would become a necessity as we tokenize more tangible or real-world financial instruments. Making the process of NFT-based lending and borrowing as seamless as possible will be crucial to building a thriving ecosystem around NFTs.
Just like digital commerce consumers or those engaging in online shopping may abandon their carts at checkout if it’s hard to complete a transaction, many potential NFT buyers and sellers can give up on trades as well. In a brand new market like NFTs, it’s vital to start building essential infrastructure so that buyers and sellers can transact seamlessly.