The Financial Risk of NFTs Includes Default

One platform known as NFTFi is a lending platform that is described as a pawn shop for NFTs. At NFTFi, users can both lend and borrow money.

A borrower is given a loan in the form of a fungible cyrptocurrency, such as Ethereum (ETH), which can then be easily exchanged for cash. At the time of writing, 1 ETH is valued at approximately $3,500 USD. The owner’s NFT is then held by the lender as collateral in the event that the lent ETH is not timely repaid by the borrower. The borrower then loses access to their NFT until the loan is paid off.

NFT-backed loans are appearing in sizes as high as $200,000. Motherboard reports that the default rate is approximately 20 percent. It sometimes works out better for the lender, with NFTs increasing in value significantly.
One NFT that was used as collateral for 3.5 ETH on NFTFi became a defaulted loan that increased in value to $300,000.

When performed legally there is money to be made, however, investing into an NFT for quick cash or an appreciated value carries a significant risk. The risks are financial, and in some cases where international currencies are connected, become complex legal risks.