Non-fungible tokens (NFTs) are spreading through the decentralized finance (DeFi) world and all its nooks and crannies – and they might be soon used as collateral on the major decentralized liquidity protocol Aave (AAVE).
Stani Kulechov, CEO of this money market that uses fungible collateral, such as ethereum (ETH), tweeted that “NFT as collateral is coming to Aave.”
And though many commenters seem at the very least intrigued by the idea, not many other information appears to be available at the moment.
Cryptonews.com reached out to Aave for a comment.
Meanwhile, according to Araliya Valuation Consulting (AVC) founder Nataliya Kalava, NFTs can be used in lending, specifically, collateralized lending, and can allow the borrower to use digital assets as collateral to borrow money against it. And one of the DeFi borrowing and lending platforms that can enable this is Aave. However, per Kalava, “challenges arise when it comes to assessing the fair market value of this type of asset due to limited liquidity.”
Using NFTs as collaterals is not a new idea either.
According to a June 2020 project report at the Imperial College London, in cases where smart contract enables users to get a loan using their NFTs, then each loan contract has an NFT as collateral. “This is possible because NFTs have market value and can be traded, auctioned and individually priced based on their rarity, properties and usefulness,” it said.
It’s also not the first time Aave would be dealing with NFTs. They previously partnered with the Ethereum-based game Axie Infinity and developed an Aave NFT for the game. Aave also invested in Pixelcraft Studios for the development of ‘Aavegotchi’, a game that allows players to collect Tamagotchi-inspired NFTs powered by the Aave protocol.
Also, as reported earlier this year, according to people specialized in non-fungible tokens, the NFT sector is likely to intersect with DeFi and other areas to produce novel products and services, including NFTs as collateral, and even “sharded NFTs”.
“NFTs in DeFi is another space with a lot of potential for growth — being able to use NFTs as collateral, for example, is something that people have been looking at,” Aave’s Isa Kivlighan told Cryptonews.com at the time. “The intersection of NFTs, gaming, and DeFi is another area with huge room for growth.”
Per DeFi Pulse, total value locked in the the 1st-placed Aave is currently USD 9.48bn, down from its recently hit USD 12.3bn all-time high. At 11:34 UTC, AAVE, ranked 27th by market capitalization, trades at USD 357 and is down by 11.5% in a day amid broader market selloff today. The price is also down by 20% in a month.
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