Web3 games have seen phenomenal growth in 2022, rising from obscurity to challenging established gaming companies. This trend is expected to continue during 2023 as game developers unveil more high-quality games, with mainstream audiences discovering these platforms, people becoming more aware of the financial benefits of playing these games, and the ability to rent NFTs making it easier for people to join and succeed in decentralized games.
With more games integrating NFTs, the space is growing and it is seeing a wider range of token offerings. While these offerings are unique and diverse, their high prices can still be prohibitive for those looking to enter the digital realm, making even the cheapest NFT unaffordable for an average person. This has been a barrier for some people interested in the industry, but the renting approach resolves this.
Curious about how NFT rentals work? Let’s dive in.
NFT rental is a way for individuals who do not own a particular NFT to use its utility or experience it for a limited period of time. To do this, they can “borrow” the NFT from a platform that supports NFT rentals.
An NFT owner can rent out their NFT to a borrower who needs it for a short time. NFT rental marketplaces use blockchain to facilitate secure transactions and ensure that the NFT is returned to the owner when the rental period ends.
NFT rental is a more affordable way for borrowers to access the benefits of some premium NFTs, such as exclusive members-only content, events, and tickets, without having to buy them. For the borrower, it’s similar to renting a video game or a movie from a streaming platform — they can access the content and then return it, with no long-term commitment required.
NFT owners can earn income by renting out their NFTs if they are not using them or if they remain idle in their NFT wallets. Many NFTs are unused by their owners for long periods of time, so any utility they generate is wasted.
NFT rentals are creating a secondary economy in the NFT industry, allowing owners to rent out their idle NFTs and earn income from them. For example, diners at Gary Vaynerchuk’s private restaurant, the Flyfish Club, must hold or purchase a Flyfish Club NFT to gain membership. If the NFT owner is not actively using it, they can rent it out to others.
As the gaming, art, and music industries enter the NFT space, NFT rental will become more mainstream and the demand for NFT rentals is expected to increase.
There are two ways NFTs are rented out — collateralized rentals and collateral-free rentals.
NFT holders can list their assets on an NFT marketplace that allows for NFT lending and borrowing. Interested borrowers can request to borrow a specific NFT according to contract terms defined between the lender and the borrower. The NFT is then deposited into a smart contract for the agreed-upon period of time.
To protect the lender and their NFT, the borrower must deposit collateral, which is typically more than the NFT’s value. The value of the NFT is verified using current online pricing, and the renter pays a rental fee to cover the cost of borrowing the asset.
These terms are formalized in a smart contract, which also includes the rental duration, collateral amount, and other terms and conditions. The contract goes into effect once both the lender and renter agree to the terms. The NFT is then temporarily transferred to the borrower, who can enjoy its benefits for the duration of the contract.
When the contract expires, the smart contract initiates the return of the NFT to the lender and the collateral to the borrower.
NFT rentals can also be done without the borrower taking possession of the NFT. In this case, there is no need for collateral, which can help to minimize the impact on the borrower’s financial assets. The process is similar to collateralized lending, with the NFT being listed on a marketplace and the borrowing process being initiated.
However, instead of the NFT being transferred to the borrower, a wrapped token of the original NFT is minted. A wrapped token is an asset that is wrapped in code to be used on a non-native blockchain and is backed by the original NFT. The lender and borrower agree on a rental fee and duration, and the terms are defined in a smart contract.
The wrapped NFT is then issued to the borrower, and the contract goes into effect. When the contract expires, the wrapped NFT is returned to the contract and burned, so it cannot be used again. This allows for NFT rentals without the need for collateral or for the borrower to take possession of the NFT.
The gaming industry, particularly the Web3 games sector, is one of the early adopters of NFT rentals. Previously, game ecosystems were closed, with players unable to monetize their in-game assets within or outside of the platform. However, with the advent of NFTs, players can now move their in-game assets to a marketplace and sell them for actual earnings, such as fiat currency.
Additionally, players can also earn money by renting out their NFTs on a marketplace that supports NFT borrowing. From avatars to in-game vehicles, virtually anything can be rented if it is represented as an NFT.
Within the Metaverse, the digital world is experiencing a new land grab as early adopters buy virtual land on gaming and metaverse-focused platforms. This has given rise to an NFT land rental industry, allowing future community members to set up the necessary infrastructure to enjoy their time spent online. NFT land rentals will soon create digital landlords and renters, making NFT renting the future of the industry.
NFTs are not a passing trend and will have a lasting impact on various industries in the coming years.
As the NFT rental industry becomes more mainstream, it will empower more people to participate in the web3 economy, regardless of whether they own any assets or have the financial means to buy them.
Both lenders and borrowers will benefit from the web3 economy through NFT rentals. Lenders can earn money from their otherwise dormant assets, while borrowers can access certain assets for a limited time to achieve specific objectives. This is the intended use of NFTs, and why they were created — to provide a utility that benefits those who hold or rent them.
At reNFT, we are focused on building the future of NFT rentals. Our goal is to empower developers by quickly enabling rental functionality for NFTs. NFT rentals have many potential uses, just like rentals do in the real world. While they are currently gaining popularity in the gaming industry, they are also becoming popular in token-gated events and communities. Click here to learn more about different rental use cases.
The future of NFT rentals is promising. As Web3 continues to grow and gain mainstream adoption, NFT rentals are poised to become more popular and widely used. This is especially true in the gaming industry, where NFTs and their potential to disrupt the way games are played and assets are owned is gaining recognition.
2023 will be an exciting year not only for reNFT but for blockchain and NFT communities, as the potential for NFT rentals to revolutionize various industries becomes more clear.
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