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Decline in NFT Lending and Potential Recovery Strategies
The NFT lending market has experienced a staggering 97% decline since January 2024, plummeting from US$1 billion to merely US$50 million by May 2025. This drastic reduction in activity is attributed to both borrowers and lenders withdrawing from the space.
Current Market Status
According to a recent report by Sara Gherghelas from DappRadar, while NFTs are not entirely defunct, there lacks a compelling reason for the NFT lending sector to recover. Gherghelas observed that the infrastructure for NFTs remains intact, yet overall user engagement has diminished significantly. She remarked:
"So far, 2025 has not delivered a compelling reason for NFT lending to bounce back. While the infrastructure is still here and the platforms remain active, activity has slowed across the board. For now, the sector seems to be in a holding pattern, waiting either for market recovery or a new use case to reignite interest."
User Activity Decline
The report highlights a sharp decline in both borrower and lender participation, with borrowing activity dropping by over 90% since the start of 2024 and lending decreasing by 78%. Interestingly, the average loan size has also decreased dramatically from US$22,000 (approximately AU$34,000) in 2022 to just US$4,000 (around AU$6,200) in May 2025, representing a significant 71% reduction.
Gherghelas notes that this trend suggests a market less willing to take risks and more cautious in leveraging assets, stating:
"Either users are borrowing against lower-value assets or simply becoming more conservative with leverage."
Potential for Recovery
To revitalise the NFT lending sector, Gherghelas advocates for the integration of real-world assets (RWAs) into the NFT space. This could include tokenised real estate or yield-generating physical items, which could provide a more stable and reliable form of collateral. By incorporating RWAs, lenders and borrowers could benefit from increased trust and security in their transactions.
Additionally, the report underscores the necessity for innovation beyond RWAs. Suggested improvements include:
- Smarter Lending Protocols: Development of systems that can evaluate loans more efficiently and effectively.
- Under-Collateralised Lending Models: Creating opportunities for borrowers to access funds with less collateral than currently required.
- Credit Scoring Systems: Implementing traditional credit scoring mechanisms adapted for the NFT space to facilitate better lending practices.
- AI-Driven Risk Tools: Utilising artificial intelligence to make lending safer and more straightforward, ensuring that both parties can engage with reduced risk.
Conclusion
While the NFT lending market faces numerous challenges, innovative solutions and adaptation to incorporate real-world assets could offer a path towards revival. The sector’s future will largely depend on its ability to attract users back to its platforms through new, trustworthy models of engagement. Without such changes, the NFT lending market may continue to languish in its current state.
