Everything You Need to Know About NFT Rentals

On Jan 22, 2023

The advent of Non-fungible tokens marks a significant revolution in the decentralized space. It redefines and broadens the decentralized economy, carves other use cases for blockchain technology, and promotes blockchain’s transparent and permissionless features. One of its greatest potentials is the financial and investment opportunities that continue to attract investors and enthusiasts.

NFTs offer a wealth of financial opportunities that are yet to be fully explored and exploited by investors. Despite being around since 2014, NFTs only entered the mainstream in 2017 and experienced a frenzy of adoption in 2021. During this period, approximately $41B worth of cryptocurrency was spent on NFTs. This figure is expected to grow exponentially as more NFT projects are rolled out.

Unfortunately, acquiring NFTs is costly; it often requires a small fortune to own these glamorous digital tokens. This has led investors, creators, and developers to unveil exciting strategies that can make NFTs affordable to all and sundry. One of these strategies includes NFT rental.

What is NFT Rental?

NFT rental is a short-term rental service that allows the owner of a particular NFT to rent it out to a borrower. This novel strategy allows borrowers to experience such NFT’s utility for the limited rental time. NFT rental is not a standard feature on all marketplaces, but specific to platforms that adopt similar protocols as DeFi to facilitate rentals and guarantee that the leased NFT is returned to the rightful owner once the rental period expires.

Why Do I have to rent an NFT?

Renting an NFT might sound frivolous, but the potential of certain digital assets makes it relevant and exciting. As such, renting out NFTs is a way of monetizing them as a lender, essentially creating another pathway to passive earnings on otherwise dormant digital assets.

Types of Renting Protocols

Like DeFi lending protocols where cryptocurrencies are borrowed, renting an NFT also attracts charges at an agreed fee. Meanwhile, there are two types of NFT rentals, which are:

Collateralized Rental – Collateralized NFT rental is when the borrower deposits an agreed level of collateral to secure the NFT. This then covers any loss and protects the owner should the digital asset go astray.

Non-collateralized Rental – Non-collateralized rental seems more straightforward and less risky for the owner; no collateral is deposited, and NFT owners don’t have to give up their digital assets. Instead, offering a wrapped token backed by the specific NFT that is minted to the renter. This wrapped NFT will be burnt when returned.

How NFT Rental Works

The entire rental protocol is managed by a smart contract that automates all transactions once the predefined conditions have been met.

For collateralized rentals, NFT owners will have to list their NFTs on marketplaces that support renting. Interested parties will then navigate the pool available and initiate the borrowing process. Once this borrowing process is activated, the said NFT will be locked in a smart contract alongside its contract’s rules.

The contract’s rules stipulate the rental duration, collateral, and other terms and conditions. Once there is a mutual agreement, the Smart contract will execute and transfer the NFT to the borrower. The smart contract also returns the NFT to the owner, and the collateral, back to the borrower once the predefined expiry date or time lapses.

For non-collateralized rentals, the procedure is similar to the collateralized counterpart but with an additional option. Since there is no collateral to fall back on or cater for risks, non-collateralized rental has a unique option that involves not sending the original NFT to the borrower. Instead, a wrapped NFT backed by the particular NFT up for a rent is minted by the smart contract and delivered to the borrower. Immediately after the expiration date and time clocks, the wrapped asset is deposited into the smart contract, which burns it. Meanwhile, several NFT ecosystems have also introduced in-house rental systems where they manage the loaned assets themselves.

It is worth noting that in both transactions, the borrowers pay rental fees. Both parties will also be responsible for their respective transaction fees, as defined by the network where the transaction occurs.

As a borrower, NFT renting allows you to experience several utilities that the rented NFT holds. For example, if you rent NFTs that breed or emit tokens or collectibles that can be sold as NFTs, whatever they emit can belong to you if such a term is included in the rental’s smart contract. Furthermore, renting NFTs like BAYC and other community-driven NFTs will grant you access to their respective communities throughout the rental period as a borrower. So NFT rental is a priceless way to earn as a lender and an exclusive way to enjoy and experience NFT utilities as a borrower.

What are the Prospective NFTs that can be rented?

Since enthusiasts or investors who can’t afford some NFTs can rent them for several purposes, below are the examples or classes of NFTs that can be rented.

Metaverse Lands – Metaverse lands are utility NFTs with several economic potentials that allow third parties to develop buildings and experiences. Borrowers can rent such lands to host social gatherings, concerts, galas and so on. In addition, users can also develop Metaverse lands with auditoriums for conferences, symposia, or retail outlets. It can also be leased to brands seeking stands or points of sale in a Metaverse ecosystem during iconic Metaverse events.

Digital Arts – Since avatars serve as a human personas in the virtual world, digital arts like avatars can be rented to enthusiasts who want to attend Metaverse events. Meanwhile, digital arts extend beyond avatars; they also include rare pieces of drawing artworks and photography. Such digital arts can be rented to beautify event centers in the Metaverse.

In-game collectibles – In play-to-earn (P2E) games, players can earn in-game collectibles as a reward for overcoming different stages and levels. These collectibles, such as accessories, weapons, or potions, can be used to help players progress through the game. Additionally, they can be rented out to other players who want to use them to win a stage in their own gaming experience, especially with special items like guns, swords, daggers, and armor.

Music and Art NFTs – Music is another booming niche in the NFT space. As music artistes release their music videos and audio as NFTs, such NFTs can be rented to those who can’t afford them. In the case of art NFTs, special NFTs with real-world utilities like the VeeFriend collections can also be rented to users who want to experience real-world use cases.

Where Can I rent NFTs?

Several marketplaces are offering NFT rental; the notable ones and their compatible networks include

IQ Protocol (compatible with Polygon and BNB networks)
Vera (compatible with Ethereum, Polygon, Solana, and BNB networks)
Defy (compatible with Polygon and BNB networks)
Trava Protocol (compatible with BNB smart chain)
Darkblocks (compatible with Ethereum, Solana, polygon, Avalanche, and Tezos)
ReNFT (compatible with Ethereum, Polygon, Solana, and Avalanche networks)
Zharta (compatible with the Ethereum blockchain)
Renfta (compatible with Skale network)

Conclusion

NFT rental is another strategic concept that adds utility to all NFTs. It allows NFT owners to loan out their idle NFTs to investors or users who seek to experience their utilities. Aside from earning passive income for NFT owners, renting opens pathways for collaboration and promotes P2P transactions within the NFT space. It increases the scope of NFTs and their economy.

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*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational material only. Individuals are required to fully research any product prior to making any kind of investment.