May 19, 2023 - 5 min read
Introducing NFT rentals and a few real-life examples to demonstrate a few practical use cases.
Why would anyone want to rent an NFT? Couldn’t you just look at the picture on your screen and pretend it’s yours? Actually, NFTs are really useful as they can bestow special privileges like VIP access to an event or maybe special skills in the case of a magical item used in a video game. This is what crypto natives call NFT utility.
That is, a lot of NFTs provide special perks, so long as the NFT can be found at your wallet’s address. Some NFTs are in such demand that it far outstrips the supply, pricing out most users from acquiring those NFTs. In some cases, an NFT may be one of a kind or part of a limited collection. Bored Ape Yacht Club is a notorious example of a significant NFT collection owned by the rich and famous.
In these cases, NFT renting is a more affordable way to tap into the benefits of some premium NFT perks without having to commit to buying the NFTs. The benefits go both ways though, as NFT holders can generate income from renting out NFTs that they aren’t actively using.
NFT rentals operate as a mechanism for temporary transfer of usage rights or access to a digital asset’s privileges.The rental process involves both parties agreeing on terms like rental duration, prices, and other conditions for the NFT being rented.
During the rental period, borrowers gain display rights, utility rights in virtual environments, access to IRL events, or certain interactions with smart contract-based applications. The lender retains the ownership of the NFT, and it reverts to them once the rental period ends.
To minimize the risk of default by the borrower, they’re required to lock collateral into smart contracts in the form of tokens or stablecoins. This collateral will be returned or liquidated depending on whether or not the NFT is safely returned to the lender on time.
In addition to lenders earning income on their NFTs, borrowers can access in-game NFTs for short-term use, allowing them to access new gameplay features or access exclusive content. Secondly, game devs can generate income from a dynamic in-game economy whereas before it’s been a key pain point for game companies and developers.
Even for games with large and steady communities of players, game devs have to provide ongoing updates to keep things running smoothly and the players interested. If there are no new features or bug fixes, players will abandon it altogether. Unfortunately, getting players who‘ve already paid money for a game to pay even more is not an easy sell unless it’s a rather significant update.
NFT rentals actually address this pain point for developers, since they can incorporate a self-perpetuating economy of secondary markets. Again, this gives rise to an in-game dynamism which is subsequently tamed by the holy trinity of blockchain technology: transparency, decentralization, and security.
By allocating a portion of the in-game transaction fees towards a DAO or similar fund, game devs will introduce additional revenue streams in addition to the production of downloadable content (DLC) or ad placements. There will be a decentralized free-for-all when it comes to the development and acquisition of special avatars, desirable land in the metaverse, or other customizable content with utility which can be represented as NFTs.
As for already-live use cases, Rarible introduced the concept of NFT rentals at the end of 2021, enabling users to rent digital art and collectibles for display in virtual galleries or other digital spaces, like in Decentraland. Artists and collectors can also lease artwork as NFTs for marketing or other commercial use with Async Art.
Players in The Sandbox rent virtual land or in-game items to generate income through their in the metaverse. Axie Infinity allows players to rent resources from other players before going into battle using what’s called Axie Scholarships. “Scholars” pay their “managers” a 30% fee and keep the remainder of the rewards they earn during gameplay.
With EulerBeats, artists will be able to rent out their audio tracks for voice performers to use in their songs. After minting their beats as NFTs, artists can rent out or sell the rights to their hottest tracks on their own terms. For NFT collateralized loans, NFTfi allows for the “lending” of NFTs while the borrowers and NFT owners pay off their loans.
Regarding NFTs which function as club memberships or entry-passes, the concept of short-term lending will be a natural fit. Gary V’s Flyfish Club is a prime example of the NFT-as-a-membership business model. Owning one of two memberships will permit access to an exclusive to a number of benefits like members-only yacht parties.
As for the restaurant itself, FFC will be a seafood-focused restaurant with a raw bar, created by award-winning chefs and hospitality experts. For limited-edition NFT holders, a private sushi omakase room serving fresh fish flown in daily from Japan will be accessible.
Overall, NFT rentals offer a new level of flexibility and monetization for NFTs, game devs, and content creators. Simultaneously, tertiary opportunities will inevitably open up as NFT rentals are monetized and the economic structures which develop around NFT lending take more concrete forms.
The gaming industry is likely the frontier where the action will play out when it comes to adopting NFT finance rentals. Ultimately, this increased accessibility enabled by NFT lending lays the groundwork for innovation, the creation of new game mechanics, and new revenue models, particularly so for smaller, independent studios and devs.
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