The NFT lending market, once hailed as a promising bridge between decentralized finance (DeFi) and digital art, is currently navigating a severe slump. According to a recent report by DappRadar, the sector has experienced a dramatic 97% drop in loan volume—from a towering $1 billion in January 2024 to just $50 million in May 2025. But all may not be lost. Analysts like DappRadar’s Sara Gherghelas believe that real-world asset (RWA) integration could be the jolt of energy the sector desperately needs.
In her May 27 analysis, Gherghelas highlighted the grim state of NFT lending, noting that despite active platforms and intact infrastructure, overall engagement is dwindling. “So far, 2025 has not delivered a compelling reason for NFT lending to bounce back,” she explained. “Activity has slowed across the board, and unless new catalysts emerge, the sector risks further stagnation.”
Tokenizing the Real World
One of the strongest contenders to reinvigorate the space is the introduction of real-world assets as NFT collateral. Think tokenized real estate, yield-generating instruments, or even intellectual property. According to Gherghelas, the appeal lies in their inherent stability compared to volatile JPEG-based NFTs. Bringing tangible assets on-chain could provide a more trustworthy and sustainable foundation for lending protocols, offering lenders greater confidence and borrowers more credible collateral.
A Shrinking Market
The statistics paint a stark picture. Since January 2024, borrower activity in NFT lending has fallen by 90%, and lender participation has decreased by 78%. At the same time, the average loan size has plummeted from its 2022 high of $22,000 to a modest $4,000—a 71% year-over-year decline. This significant drop suggests that users are either opting to borrow against lower-value NFTs or exercising greater caution with leverage.
Adding to this cautionary trend is the shortening of average loan durations. In 2023, the average loan spanned around 40 days. In 2024 and into 2025, that number has leveled off at about 31 days. “Loans are being taken more frequently, but for shorter timeframes,” Gherghelas noted. “This may reflect a shift toward more tactical, short-term liquidity strategies rather than long-term commitments.”
Beyond Art and Collectibles
The larger downturn in the broader NFT ecosystem is also playing a role. Trading volumes for NFTs dropped 61% in Q1 of this year, from $4.1 billion a year ago to $1.5 billion. As the value of NFTs used as collateral shrinks, lending activity naturally follows suit. While a handful of platforms have maintained some traction, they remain the exception, not the rule.
Currently, the NFT lending ecosystem is supported by only a handful of protocols—just eight with any significant market share. Gone are the days when speculative flipping and rapid price appreciation fueled borrowing. Today’s market is more conservative, risk-aware, and searching for real value.
The Path Forward
Despite these challenges, DappRadar remains cautiously optimistic. Gherghelas suggested that innovation could still lead the way, especially through smarter infrastructure such as undercollateralized lending models, crypto-native credit scores, and AI-powered risk assessment tools.
“The flip-for-liquidity model that worked during bull markets isn’t fit for today’s landscape,” she said. “But that doesn’t mean NFT lending is dead. It’s simply evolving.”
As platforms pivot to include utility-driven and culturally resonant assets, combined with better product design and use cases grounded in the real world, there may still be a sustainable future for NFT lending. In this new chapter, it’s not just about digital art anymore—it’s about anchoring digital finance in real-world value.
