Blue chip collaterals help stabilize NFT lending: Paraspace

A recent report by Paraspace, a nonfungible token (NFT) money market protocol, and BitKeep, a multichain wallet, has revealed that the amount of NFTFi loans (NFT borrowing and lending) has exceeded $430 million from 43,521 borrowers. The majority of the collateral was from the most popular NFT collections, such as Wrapped CryptoPunks, Bored Ape Yacht Club, and Mutant Ape Yacht Club.

Researchers from Paraspace and BitKeep revealed that NFTFi had a substantial increase in outstanding loans from January to March, with an estimated $25 million. Additionally, the launch of Blur’s digital collectible lending protocol, which was endorsed by Taiwanese celebrity Machi Big Brother, saw a total of $16 million in loans within a day. The main driver of this growth was the invention of Bitcoin Ordinals, which caused the total NFT market transaction volume to skyrocket to $1.5 billion in March, though it dropped to $330 million in May. Despite the development, Paraspace and BitKeep researchers still warned of liquidity issues that remain a constant in the sector.

In an announcement to Cointelegraph, the makers of Paraspace NFTs revealed that since beginning operations last year, the protocol has seen over $280 million in NFT loans, yet only 16 NFT liquidations with no defaulted debt. The protocol’s success, they say, is due to the regulations that only permit the most reputable and highly liquid “blue chip” NFTs to be used as collateral. The price range for these blue chip NFTs is usually very steep, with an average cost between $11,000 and $120,000.

Despite this, developers from both Paraspace and BitKeep have warned that the NFTs are a new market with “scant historical data and no widely accepted valuation analysis techniques, which makes pricing hard.” This has caused numerous disparities in prices even within the same NFT series, due to conflicting perceptions of rarity that are based on subjective opinions. When asked about the future of the market, the developers had this to say:

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