NFT renting. What is it, and why is it the next big thing in NFTs?

As the NFT (non-fungible tokens (NFTs)) space widens, it will find more token offerings. As unique digital assets, these offerings are diverse, but the hefty prices still put off those seeking to enter this new digital realm.

Buying and collecting NFTs is undoubtedly not a cheap endeavour.

Even the lowest-priced NFTs from popular projects, such as Cryptopunks and Bored Apes, are not affordable for those seeking to benefit from holding these premium NFTs. NFT renting makes these assets more accessible to a broader audience by lowering the financial barrier to entry.

This is why NFT renting is now the next big ‘thing’ to holding premium NFTs themselves. It is what it says, renting out NFTs and providing others with the experience of owning a said NFT (and enjoying the utility that comes with it) for a limited period, without the need to buy the NFT outright.

Curious how NFT renting would work? Let us find out.

What is NFT renting?

NFT renting is a process where individuals who do not hold or own a particular NFT can access its utility or experience it for a limited time. This is achieved through temporary leasing or access, allowing users to benefit from NFTs without transferring full ownership. This arrangement enables users to experience unique digital assets without requiring full ownership.

A person who owns a specific NFT, referred to as the NFT owner, can rent it out to a user who needs it for a short period. The rental process involves rental transactions, where rental fees and prices are set by the NFT owner and influenced by the platform. NFT rental marketplaces use DeFi-like blockchain technologies to facilitate secure transactions, manage ownership and user roles, and guarantee that the NFT is returned to the owner once the rental period expires. This process enables greater accessibility and flexibility within the digital asset ecosystem.

Why rent an NFT?

For borrowers, NFT renting is a more affordable way to access the benefits of premium NFT utilities, such as exclusive members-only content, events, and tickets, without having to pay to purchase them. Renting high-value NFTs makes these assets accessible to a broader audience, democratizing access that high purchase prices would otherwise limit.

For the borrower, it is the same as renting a video game or a DVD from an online catalogue — they view the content and then return it. No long-term commitment is required.

Those renting out their NFTs can obtain a source of income if they are not utilising the utility behind the NFT or if it remains idle in their NFT wallets. NFT renting can generate revenue for NFT owners and businesses, as a portion of the fees collected from rentals goes directly to the owner.

Many NFTs are unused by their owners for most days or weeks. Whilst these owners are not using their assets, they also have little interest in selling them should they wish to take advantage of their utility. Thus, any utility that the NFT generates is wasted — sitting unused in the wallet.

Thus, NFT renting has created a secondary economy within the NFT industry. Creating new rental opportunities benefits both users and businesses by expanding access and generating new revenue streams.

Source: Gary Vaynerchuk, Instagram

For example, to eat at Gary Vaynerchuk’s members-only private restaurant Flyfish Club, diners must hold or purchase a Flyfish Club NFT that serves well as membership. Should the Flyfish Club NFT holder not actively use it, they can rent to borrowers and make a profit on the side.

With the gaming, art, and music industries entering the NFT space, NFT rentals are expected to become more mainstream, leading to a surge in demand for NFT rentals.

How does NFT renting work?

There are two ways NFTs are rented out—collateralised renting and collateral-less renting. NFT rental platforms use smart contracts to automate and secure the rental process, ensuring that each rental transaction is executed transparently on the blockchain network. Within the system, specific functions handle actions such as listing, renting, returning NFTs, and managing the transfer of digital assets or temporary access rights for a specified period.

The platform’s functionality is enabled by smart contracts, and new rental policies or standards are created to support these processes. Each rental transaction is governed by smart contracts that enforce specific conditions, including usage scope, penalties, and royalties, thereby providing security for both owners and renters.

The system facilitates the secure transfer of usage rights without altering ownership, and all relevant functions are defined in a file within the platform’s codebase. This integrated approach creates a robust and secure environment for NFT rentals, leveraging the underlying blockchain network.

Collateralised lending

NFT holders can list their NFT assets on an NFT marketplace that permits NFT lending and borrowing. This model is known as collateralised rentals, where the borrower must provide collateral—such as another NFT or cryptocurrency—to secure the transaction. Interested borrowers searching for a specific NFT can ask to borrow it subject to contract terms defined between the lender and the borrower. The NFT in question becomes a rented NFT and is then deposited into a smart contract for a period agreed upon between both parties.

To protect the lender and their NFT, the borrower must provide collateral—likely more than the value of the NFT. The value of each NFT is presumably verified using the current pricing listed online. Furthermore, the renter will pay a rental fee to cover the cost of borrowing the digital asset.

These terms are formalised in a smart contract that includes the rental duration, the amount of collateral required, and other mutually agreed-upon terms and conditions.

The contract goes into effect upon agreement between the lender and renter on all smart contract parameters. NFT renting has begun—the NFT temporarily passes to the borrower as a rented NFT, who can then reap the benefits of holding that NFT for the duration of the contract.

When the contract expires, the smart contract initiates the return of the rented NFT to the renter, and the collateral is returned to the borrower.

Collateral-less renting

NFT rentals can also conclude more simply. This method is where the NFT never enters the borrower’s hands, for the lender. Simultaneously, individuals who borrow are not required to deposit any collateral, thus minimising the impact on their financial assets.

Collateral-less renting occurs in much the same way as collateralised lending.

NFT holders list their assets on an NFT marketplace, and individuals initiate the NFT borrowing process. The NFT asset is then deposited into a smart contract, with the contract terms defined between the lender and the borrower.

However, there is a slight difference.

A wrapped token of the original NFT is minted in a collateral-less renting arrangement. These wrapped tokens are a form of rental NFTs created specifically for temporary access to the underlying asset. A wrapped token is an asset, such as a cryptocurrency or an NFT, that is wrapped using code to be utilised on a non-native blockchain and backed by the original NFT.

The lender and borrower mutually agree on a rental fee and duration, and the smart contract takes effect — issuing the wrapped NFT to the renter.

Some platforms also offer subscriptions as an alternative model, allowing users to access rental NFTs or digital assets through ongoing subscription-based access rather than one-time rentals.

Once the smart contract expires, the wrapped NFT is returned to the contract and is ‘burned’ so it cannot be used again.

NFT rentals and their impact on GameFi

As with newer technology, the gaming industry, particularly the GameFi sector, is one of the first adopters of renting NFTs. NFT rentals are a game-changer for games and the use of in-game items, enabling players to access rare or exclusive assets without full ownership and transforming how virtual assets are utilised. Previously, game ecosystems were closed, with players spending hours playing and earning in-game assets, but unable to monetise them within or off the platform.

This has now changed with the advent of NFTs and the emergence of NFT renting.

With NFTs, for the first time, they can move their earned in-game assets to a marketplace and sell them for actual earnings, i.e. fiat currency. Better still, players who wish to earn money on their existing purchases can list the same NFTs on a marketplace that supports NFT borrowing and earn money while they sleep.

From avatars to in-game vehicles, there is nothing that a borrower cannot rent, provided the entity is represented as an NFT.

Within the Metaverse itself, the next land grab is occurring in the digital world. As early adopters buy land within the gaming and metaverse-focused platforms, an NFT land rental industry has emerged. This land is often referred to as both virtual real estate and digital real estate, highlighting its significance in the virtual economy and gaming industry.

NFT land rentals enable future community members to establish the necessary infrastructure, allowing them to enjoy their time spent online fully. Whether a store, garage or house needs to be built on virtual land, NFT land renting will soon create digital landlords and NFT land renters.

It is why NFT renting will become the future.

The future of NFT renting

NFTs are here to stay and are certainly not a fad. NFT renting is shaping the broader NFT ecosystem by redefining digital ownership and enabling new ways to access and utilise digital assets.

NFTs will impact all industries in the coming years, making the NFT rental industry more mainstream. Non-fungible tokens are creating new opportunities for both users and businesses, expanding the use cases for NFT renting in areas such as gaming, virtual real estate, and even ticketing. NFT renting enables users to benefit from NFTs without transferring complete control or full ownership, providing temporary access while preserving the rights of the original owner.

Both lenders and borrowers will benefit from the web3 economy, as NFT lenders can earn on their otherwise dormant assets, and NFT borrowers can leverage specific assets for a limited time to achieve a particular objective at a specific point in time. Ultimately, this is the way NFTs were intended to be used and why they were built — to provide a utility that benefits those who hold or rent them. Additionally, as the NFT ecosystem evolves, we can expect further innovations and applications that will continue to transform digital ownership and asset management.