The reality of a multi-chain world is emerging before our eyes. While a multi-vertical crypto ecosystem (DeFi, NFTs, early NFT Finance, etc) was present last cycle, the intricacies and complexities of rotating between ‘current metas’ has never been more chain-agnostic. The Dencun Upgrade giving life to Eth L2s, Runes and Pre-Runes improving the possibilities of Bitcoin DeFi, Solana Hybrids and ERC404s, the game is changing and the complex crypto and NFT ecosystems have become even more convoluted.

But, one thing that has stayed fairly consistent since the inception of NFT Finance: the stigma around leveraging up on NFTs.

In the early days of trading NFTs, market inefficiencies were the norm. The holders of the volatile and relatively illiquid assets were accustomed to an extremely nascent and basic system of trading their NFTs:

- Buy a floor, mid rare, or rare NFT from a collection of NFTs

- Only make money if the floor of the entire NFT collection went up

- Only sell if there was a particular buyer for that specific NFT

- If none of that happened, you bag held to zero.

While the introduction of peer-to-peer (p2p) NFT lending in May of 2020 from NFTfi initiated the movement towards accessible liquidity for NFT holders, times really started to change in early 2022 with the implementation of peer-to-pool (p2pool) instant liquidity and again in 2023, with deeper WETH bid liquidity on top NFT marketplaces.

In 2020 and 2021, P2P NFT lending was extremely nascent and the barrier to entry for finding a lender and agree on terms was enough resistance to keep over-leveraged NFT trading at bay. 

Average monthly NFT lending volume through 2020: 40k USD

Average monthly loan APR through 2020: 70% 

Average monthly NFT lending volume through 2021: 3.3mn USD

Average monthly loan APR through 2021: 55%

Figure 1- Monthly NFTfi Loan Volume (ETH)

Figure 2- Monthly Average NFTfi Loan APR (Volume Weighted)

Time-based P2P NFT lending inherently added a layer of resistance to the degen leverage equation that didn’t provide the right setting for mass liquidations at scale that could cause floor prices to plummet. So, like any normal industry, we doubled down on EASIER and INSTANT access to liquidity for NFT degens.

Enter Peer-to-Pool NFT lending.

The most prolific P2Pool NFT lending platform, BendDAO, launched in April 2022 and quickly gained market share garnering over 46,000 ETH worth of active collateral on the platform by May 2022. Prior to BendDAO, NFTfi held almost 100% market share of the NFT lending ecosystem. Within a month of BendDAO’s launch, p2pool lending had between 70-80% market share garnering massive popularity w/ the Bored Ape community and the rest of the Yuga ecosystem.

Figure 3- Daily Borrow Volume (USD), Normalized

Figure 4- Value of Bend DAO Loan Collateral Over Time

Now, how does this impact today’s rotatooor and cross-chain world that we live in?

Easy. 

To properly play the rotator game with size, ETH NFT whales have consistently taken out loans on their ‘blue-chip’ NFTs and rotated them into cross-chain plays.

If we take a look at the current ETH NFT lending landscape, there is a total cumulative outstanding debt of $450mn across P2P and P2Pool ETH-based lending platforms.

Figure 5- Cumulative Outstanding NFT Loan Debt (USD), Across Listed Platforms

Something important to note:

Three of the top six platforms offer TIME-BASED liquidations and offer ‘instant’ liquidity via collection-based bids on particular whitelisted NFTs. These are going to be the traditional P2P platforms: NFTfi, Arcade, and Gondi.

Figure 6- Outstanding Debt by Platform (USD)

The other three platforms offer instant liquidity on whitelisted collections and have varying methods of liquidations: Blend, Metastreet, and BendDAO. Both Blend and BendDAO have been consistently thrown around as negative platforms for the overall health of NFT collection floor prices and both for different reasons.

Blend: While Blend claims to be an NFT lending platform, it is more of a quick flip / Buy Now, Pay Later (BNPL) platform. The two ways to get access to liquidity are:

1. The borrower puts up a tiny amount of capital as collateral and get to ‘own’ an NFT that you then have to quickly pay off or have to find a new lender every 30 hours. If the terms of the first loan aren’t desirable for the next lender, chances are the existing APR is going to rise and the borrower then gets liquidated if they cannot pay off the NFT or the interest accrued.

This is a desirable ‘loan option’ for someone who is looking for a quick flip and willing to take on the initial risk to get access to instant liquidity. It is by no means stable nor the best option for borrowers, BUT the incentives of the Blur team have consistently pushed NFT holders to take on risky positions to receive an undetermined future airdrop.

Figure 7- Example 1, Buy Now Pay Later (Blur)

Figure 8- Example 2, Buy Now Pay Later (Blur)

2. Or the borrower takes out a loan on an NFT that is already in their possession and plays roulette with how the lender will play the loan. Something to remember with Blend lending is that the entire platform is incentivized. Both lenders AND borrowers are incentivized to use the platform for the $BLUR airdrop and this incentivized liquidity is looking to boost Blur’s vanity metrics rather than provide a SOLID lending platform for NFT holders.

After 30 hours, the lender can refinance the loan (basically passing the loan to the next lender) leaving the borrower in a position where the flexible loan terms can be pushed to unrealistic and almost unfair terms for the borrower. Either a) the loan gets picked up by a new lender for the next 30 hours, repeating the process or b) the loan apr goes through the roof causing the borrower to either pay back the loan asap or default.

Figure 9- Taking out a Loan Against an Asset You Own (Blur)

While this process has been maturing since NFTfi’s initial platform launched in 2020, the Ethereum NFT Finance landscape is years beyond other blockchain ecosystems. And with that said, we are starting to see some eerily similar cycles happening across new emerging NFT ecosystems like Bitcoin Ordinals and Solana NFTs.

Ordinals main lending marketplace, Liquidium, has seen over $36 million in volume since the platform launched in October 2023. On Solana, over 95% of NFT loans have been facilitated by SharkyFi who have racked up over 1.2mn loans on the platform all-time and average $1.5mn in daily volume.

Drawing comparisons between the Eth NFT bull run and what we are seeing in the Ordinals and Solana NFT ecosystem brings to light what is possible in the good times (when people are leveraging up) and also the downside (when it all unravels) like we are seeing now in the Eth NFT ecosystem. 

These cycles will continue to repeat and they are temporary. 

Ordinals, Solana, and whatever the hottest Eth L2 is will continue to see leveraged upside until profits begin to be taken and rotators begin to rotate. Eth NFTs will not be down only forever and will once again regain their own bull cycle.

To keep on top of the data, below is a list of top cross-chain resources:

1. Parsec

2. NFT lending dune 

3. NFT marketplace dune

4. NFT royalties

5. BendDAO

6. Blur Loans dune

7. Blend

8. BendDAO dash

9. SharkyFi dash

10. MetaStreet dash

11. Liquidium dash

12. Flooring Dash

13. Msteth dash

14. Liquidium App

15. Liquidium App Analytics