On Thursday, May 25, Binance announced the launch of a new offering, ‘NFT Loans,’ which as its name would suggest, allows users to leverage various tokens as collateral for borrowing crypto and more.

To kick things off, the exchange shared that only eligible “blue-chip” NFT tokens will be able to participate and receive instant liquidity. At the time of writing, these include Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Azuki, and Doodles — with more said to be added in the near future.

We are excited to announce our latest product, the Binance NFT Loan.

Get instant liquidity with your selected blue-chip NFTs.

? Instant Borrowing
? Zero Gas Fees
? Liquidation Protection
? Competitive Interest Rate

Read the blog for more details:

— Binance NFT (@TheBinanceNFT) May 25, 2023

Specifically geared towards the Ethereum blockchain, Binance NFT Loans enable users to borrow ETH using their collectibles as collateral. Like others before it, this offering aims to combine the NFT  and Decentralized Finance (DeFI) worlds to provide participants with quick and easy access to liquidity, all without having to sell their prized digital assets.

Time has shown that one of the main challenges in the NFT market has been extracting value from these unique digital items without parting with them. While this can in some cases be done by leveraging intellectual property, NFT Loans provide a more straight forward solution to the problem.

For participating parties, the amount that can be borrowed depends on the Loan-To-Value (LTV) ratio and the NFT’s floor price, which determines the maximum borrow limit. Interest rates on the other hand are set based on Binance’s internal algorithm, and according to the exchange are “subject to change based on market and risk parameters.”

While the NFT Loan feature offers the advantage of seemingly easy access to liquidity, it’s important to also understand the associated risks, which might include price volatility, liquidation risk, and changes in loan terms to name a few. With the assets existing in a highly volatile market, borrowers can risk liquidation if the value of the collateral drops significantly.

That being said, Binance shared that borrowers using its platform will have some form of liquidation protection, in that they can still repay loans even after a liquidation has taken place — granted there are no bids on their NFT during the liquidation auction.

For many the offering is seen as beneficial as it allows greater liquidity unlock, instant borrowing, zero gas fee transactions, and the above mentioned liquidation protection.

As part of its announcement, Binance shared that “The future of NFT finance looks promising, and with responsible use, this new Loan Feature could be a game-changer in how we access and optimize digital asset value.”

In related news, Blur announced a lending program that allows users to buy now and pay later.