Non-fungible tokens (NFTs) shot to popularity in 2021. Since then, these digital assets have commanded massive price tags, with actors, athletes, and other A-list celebrities lining up to purchase their favourite digital collectibles. However, NFT sales have taken the back seat in recent times, while a new aspect of the industry — NFT renting — is quickly picking up steam. But what is NFT renting, why is it gaining popularity, and how does it work? Tag along to find out.
What is NFT renting?
NFT renting denotes a process where the owner of an NFT can lend his digital asset to someone who wants to borrow it for a stipulated time. The process involves the use of a smart contract that handles the terms and conditions of the rental agreement. When the rental period is over, the smart contract returns the NFT to its original owner.
Why rent NFTs?
NFT rentals have gained prominence since it enables investors and NFT enthusiasts to access attractive NFT projects without dealing with their lofty price tags.
Having said that, the leading market for NFT rentals is the GameFi industry. Several play-to-earn and move-to-earn gaming platforms require users to purchase an NFT to begin playing and earning crypto. However, in most cases, these NFTs are very expensive and create a barrier to entry.
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Keeping this in mind, several platforms allow NFT holders to rent out their extra assets to new users. This lowers the entry barrier and helps increase the number of active users on the platform.
In some cases, users have the NFT required to start the game but need additional NFTs to boost their earnings. Again, these additional NFTs can be very expensive. Therefore, renting them out to increase revenue is a much better alternative. It’s a win-win situation. The NFT owner receives a passive income, whereas the player can access/boost earnings.
Metaverse land is another lucrative outlet for NFT rentals. Again, buying these virtual plots can be extremely heavy on the pocket, making renting a realistic option. For instance, Decentraland allows users to rent out their vacant LAND, an ERC-721 non-fungible token.
This can be especially useful for brands who want to target audiences in the metaverse. These firms can rent metaverse land, customise the space with their brand colours, and logos, and even add a link to their website. They can even use the area to hold activations and other events.
“Most brands don’t want to make a bet in this space yet. It’s too early, they don’t know which platform they want to be on, and they don’t want to make an expensive purchase,” says Samuel Huber, founder and CEO of LandVault, a leading metaverse development studio. Therefore, renting is an ideal “way for them to get started at a lower cost.”
Renting digital art is another avenue that artists are exploring. It creates a secure and transparent way for artists to lease their work to galleries and enthusiasts. Some people rent expensive profile picture NFTs, such as the BAYC, just for bragging rights. Some brands also rent popular NFT characters to shoot commercials and other such activities.
For instance, an NFT rental platform called BoredJobs has partnered with BAYC holders, connecting them with brands interested in renting out their NFTs. In an email exchange with NFTNow, BoredJob said that they have more than 500 BAYC holders on board and have received hundreds of rental inquiries.
How do NFT rentals work?
In most cases, everything begins at an NFT rental marketplace. Some of the popular blockchain protocols where you can rent NFTs are Vera, Trava NFT, UnitBox DAO, N3RP, Double Protocol, reNFT, and IQ Protocol.
Owners list their NFTs for interested parties to browse through. While listing the NFT, owners usually need to add several details, such as their desired price per day and the number of days they want to list their NFT.
If an agreement is reached, the price, rental period, and other relevant factors are embedded into a smart contract. The renter sends the required amount of crypto to the smart contract, and once the tenure is over, the smart contract returns the NFT to its rightful owner.
Sometimes, the smart contract will require the renter to provide some collateral. If the renter does not return the NFT within the stipulated period, the collateral is sent to the NFT owner. Some platforms do not require any collateral, but instead of providing the real NFT, the smart contract creates and issues a wrapped NFT to the renter. After the rental tenure is concluded, the wrapped NFT is returned and burned.
Conclusion
NFT rentals are becoming extremely popular as people are finding different ways of leveraging these assets without the hassle of spending massive amounts of money. It also provides value to both parties involved; the renter benefits from the utility of the NFT, and the owner receives a passive income. Currently, the NFT market is experiencing a bit of a slump, but most experts believe it will recover in the future. And when it does, the market for NFT rentals should also explode.
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