# How Are NFTs Used to Collateralize Loans in DeFi? ▴ Learn

**Published:** 2025-11-16
**Categories:** Learn

---

## How Are NFTs Used to Collateralize Loans in DeFi?

NFT lending platforms allow users to lock their non-fungible tokens as collateral to borrow fungible cryptocurrencies (like ETH or stablecoins). The loan is typically structured as an overcollateralized peer-to-peer or pool-based loan.

If the borrower defaults, the platform liquidates the NFT to cover the debt. Valuing the unique NFT collateral is the main challenge.

What Is the Difference between Fungible and Non-Fungible Tokens (NFTs)?

What Is a Fungible Token versus a Non-Fungible Token (NFT)?

How Can an NFT Be Used as Collateral in DeFi Lending?

How Does Fractional Ownership of NFTs Impact Their Use as Collateral in DeFi Lending?

## Discover More

- 
### [What Is the Impact of “Flash Loans” on the Stability of Liquidity Pools in DeFi?](https://crypto.greeks.live/learn/what-is-the-impact-of-flash-loans-on-the-stability-of-liquidity-pools-in-defi/)
![This visualization abstracts complex financial mechanisms perhaps representing the intersection of decentralized finance DeFi infrastructure and centralized exchange CEX liquidity provision. The dual cyan modular sections suggest rotating mechanics or possibly a digital representation of a collateralized debt position CDP mechanism in perpetual swaps where exposure is being precisely managed. The highly reflective planar surfaces imply an instantaneous reflection of market depth data or perhaps the settlement layer of an on-chain options exercise. Key concepts include volatility surface mapping implied volatility skew analysis and the structural integrity required for robust automated market maker AMM operations under high-frequency trading stress. This configuration mirrors the dynamic balance needed between delta hedging strategies and maintaining sufficient margin requirements in futures contracts. The visual tension suggests an execution phase or a key decision node in algorithmic yield farming deployment.](https://crypto.greeks.live/wp-content/uploads/2025/10/Symmetrical-Bifurcation-Involving-Teal-Actuator-Segments-Near-Mirroring-Reflective-Surfaces.jpg)

Flash loans enable large, instant trades that can cause extreme, temporary price impact and high slippage in DeFi liquidity pools.

- 
### [How Can a Governance Attack Be Executed Using Flash Loans in DeFi?](https://crypto.greeks.live/learn/how-can-a-governance-attack-be-executed-using-flash-loans-in-defi/)
![This abstract visualization depicts two intersecting, elongated structures crossing over a central, concave, reflective disc suggesting a nexus point. The composition evokes the dynamic equilibrium required for efficient Order Book management within Decentralized Finance DeFi protocols. The tapered forms suggest optimized conveyance channels or transmission lines representing underlying Blockchains or Ledger networks facilitating Transaction Finality. The central hub symbolizes the instantaneous clearing mechanism of Perpetual Swaps or sophisticated Volatility Index derivatives priced against underlying Cryptocurrency assets. Keywords include Atomic Swaps Limit Order Book Collateralization Impermanent Loss Liquidation Waterfall Alpha Generation Yield Farming Non Fungible Token NFT staking mechanisms. This schematic essence captures the high frequency nature of Automated Market Maker AMM arbitrage across aggregated liquidity venues.](https://crypto.greeks.live/wp-content/uploads/2025/10/Symmetrical-Intersection-of-Tokenized-Asset-Hedging-Mechanisms-and-Decentralized-Exchange-Liquidity-Pools.jpg)

Borrowing a huge amount of governance tokens in one transaction to pass a malicious vote before repayment.

- 
### [Does the Use of Smart Contracts in DeFi Reduce Systemic Risk?](https://crypto.greeks.live/learn/does-the-use-of-smart-contracts-in-defi-reduce-systemic-risk/)
![The close-up reveals a polished, high-precision electromechanical component, possibly a gimbal or actuator, featuring dark, reflective surfaces juxtaposed with matte beige and silver housing segments against a void background. This abstract technical presentation visually encapsulates the concept of latent volatility embedded within complex financial structures, specifically referencing the extrinsic value component of tokenized options contracts. The smooth, rounded surfaces suggest optimized kinetic dampening crucial for mitigating slippage in high-frequency arbitrage scenarios. This structure embodies the non-linear price discovery dynamics characteristic of perpetual swaps and structured crypto products where implied volatility modeling must account for idiosyncratic asset correlation risks, mirroring the stable yet adjustable nature required for robust decentralized exchange infrastructure maintenance. Key terms include option Greeks theta decay algorithmic execution synthetic asset formation and zero-coupon yield curve interpolation across blockchain settlement layers.](https://crypto.greeks.live/wp-content/uploads/2025/10/Articulated-Dynamic-Actuator-Assembly-Modeling-Volatility-Surface-Convexity-in-Decentralized-Finance-Instruments.jpg)

Reduces traditional counterparty risk via automation but introduces new risks like smart contract bugs and oracle failure.

- 
### [Beyond Trading Fees, What Other Incentives Might a DeFi Protocol Offer to Mitigate Impermanent Loss?](https://crypto.greeks.live/learn/beyond-trading-fees-what-other-incentives-might-a-defi-protocol-offer-to-mitigate-impermanent-loss/)
![This stark visual composition features two highly polished metallic disks seemingly floating above a textured, curved substrate against absolute blackness, evoking themes of digital asset securitization and structured products. The upper disk is sharply angled, suggesting directional volatility inherent in leveraged perpetual futures or call option expiry dynamics. The lower disk rests near the base unit which exhibits recessed circular apertures reminiscent of blockchain node identifiers or smart contract execution points. This abstraction mirrors the complex interplay of underlying asset price action and derivative payout structures, particularly emphasizing concepts like delta hedging efficiency and collateral management stability within synthetic asset protocols, far beyond simple spot trading paradigms.](https://crypto.greeks.live/wp-content/uploads/2025/10/Metallic-Replicating-Disks-Suggesting-Impermanent-Loss-Mitigation-in-Decentralized-Finance-Mechanisms.jpg)

Protocols offer native governance tokens as "liquidity mining" rewards to increase LP returns and offset impermanent loss.

- 
### [What Is the Difference between ‘Slippage Tolerance’ and a ‘Limit Order’ in DeFi?](https://crypto.greeks.live/learn/what-is-the-difference-between-slippage-tolerance-and-a-limit-order-in-defi/)
![This macro photographic rendering depicts a high-precision component, possibly a ceramic bearing or contact point, resting within a complex dark matrix suggestive of underlying hardware infrastructure. The polished obsidian sphere reflects incident light sharply against a matte black substrate riddled with fine particulate matter, potentially representing data dust or trace exchange residuals. A vibrant teal strip runs diagonally, perhaps symbolizing a dedicated liquidity pool channel or an immutable transaction ledger segment. This visual metaphor strongly conveys the robustness required for secure decentralized exchange mechanisms, referencing hardware security modules and the physical integrity underpinning cold storage cold vaults. The composition evokes themes of low-latency execution essential for sophisticated options hedging strategies, where microsecond delays impact delta gamma exposure and slippage remediation across high-frequency arbitrage routines on decentralized autonomous organizations governance platforms. The focused depth of field emphasizes singularity within complexity, mirroring the critical nature of single-point key management in custodial digital asset portfolios.](https://crypto.greeks.live/wp-content/uploads/2025/10/Macro-Examination-of-Black-Ceramic-Ball-Bearing-Integrated-into-Decentralized-Finance-Ledger-Substrate-Structure.jpg)

Slippage tolerance is a market order protection; a limit order is an instruction for a specific execution price.

- 
### [In What Type of DeFi Protocol Is Batching Most Commonly Used?](https://crypto.greeks.live/learn/in-what-type-of-defi-protocol-is-batching-most-commonly-used/)
![This highly polished metallic and crystalline apparatus suggests a mechanism for high-frequency settlement or price discovery within decentralized finance infrastructure. The central transparent sphere and reflective disc evoke the physical realization of complex computational models underpinning options pricing mechanisms like stochastic volatility surfaces. The sharp metallic stylus extending from the sphere symbolizes precise execution of derivatives contracts perhaps relating to zero-knowledge proofs or lattice-based cryptography safeguarding future asset exchanges. This configuration visually represents the convergence of physical engineering precision with abstract financial engineering concepts such as delta hedging ratios applied to Layer 2 scaling solutions for synthetic assets. The dark background emphasizes isolation and focused execution typical of dark pool order books or novel algorithmic trading routines for perpetual futures.](https://crypto.greeks.live/wp-content/uploads/2025/10/High-Fidelity-Optical-Mechanism-Modeling-Quantum-Resistant-Derivatives-Settlement-Precision.jpg)

Batching is most common in MEV-resistant DEX protocols and decentralized lending platforms to ensure fair and efficient transaction processing.

- 
### [What Is ‘Impermanent Loss’ in the Context of Decentralized Finance (DeFi) Liquidity Pools?](https://crypto.greeks.live/learn/what-is-impermanent-loss-in-the-context-of-decentralized-finance-defi-liquidity-pools/)
![The visual composition strongly suggests a dualistic market state, mirroring the intrinsic asymmetry inherent in options pricing models like Black-Scholes applied to volatile crypto assets. A central hub analogous to a decentralized exchange ticker anchors two opposing fields, one exhibiting high reflectivity mirroring bullish sentiment or positive skew, the other deep shadow suggesting bearish positioning or negative gamma exposure. Thin, sharp appendages extend outward resembling precision instrument arms essential for continuous automated market maker arbitrage or sophisticated perpetual swaps execution. This structure abstracts the critical equilibrium required in maintaining risk parity across complex decentralized finance protocols especially concerning yield farming locked value and its relationship to underlying token volatility surfaces where theta decay is perpetually managed through diligent execution of rolling strike adjustments. The contrasting light and dark quadrants symbolize realized versus potential volatility bands crucial for calculating effective option premiums and ensuring settlement integrity under fluctuating on-chain liquidity constraints.](https://crypto.greeks.live/wp-content/uploads/2025/10/Symmetrical-Financial-Instrument-Metaphor-Illustrating-Delta-Hedging-Dynamics-Across-Impermanent-Loss-Curves.jpg)

A temporary loss for liquidity providers due to asset price divergence compared to holding, realized only upon withdrawal from the pool.

- 
### [What Is “Liquidity” in the Context of a DeFi Rug Pull?](https://crypto.greeks.live/learn/what-is-liquidity-in-the-context-of-a-defi-rug-pull/)
![A macro view captures an assembly featuring highly polished metallic components surrounding a translucent cyan-tinged lens structure capped by sharp crystalline protrusions. This configuration metaphorically represents the structural integrity required for decentralized finance collateralized debt positions or complex perpetual swaps architecture. The sharp points symbolize the precision of automated market maker impermanent loss mitigation or tight bid ask spreads in over the counter digital asset trading. Markings on the base suggest precise calibration necessary for optimal oracle data feeds or efficient block finality consensus mechanisms within novel Layer 2 scaling solutions. The dark high contrast setting emphasizes the inherent technical sophistication and risk management protocols vital for navigating volatile cryptocurrency derivatives landscapes like volatility index tracking or dynamic hedging strategies.](https://crypto.greeks.live/wp-content/uploads/2025/10/Precision-Engineering-of-DeFi-Yield-Enhancement-Structures-Highlighting-Staking-Mechanisms-and-Liquidity-Provision-Prowess.jpg)

The pool of funds (paired assets) locked in a DEX smart contract that facilitates trading; its removal causes a rug pull.

- 
### [What Mechanisms Are Used in DeFi to Prevent or Mitigate MEV Exploitation?](https://crypto.greeks.live/learn/what-mechanisms-are-used-in-defi-to-prevent-or-mitigate-mev-exploitation/)
![A highly polished, metallic, spherical fulcrum rests upon a cyan-tinted, reflective substrate secured within a matte grey casing, bisected by a sharp, elongated metallic stylus. This structure represents the intricate interplay of governance tokens and liquidity provision within a non-custodial DeFi protocol. The reflective surface symbolizes the atomic swap execution layer clarity, while the central sphere suggests a weighted average price discovery mechanism, perhaps modeling oracle manipulation resistance or concentrated liquidity pool management. The sharp points denote aggressive liquidation thresholds or strike price precision necessary for complex perpetual futures contract settlement integrity across disparate blockchain validators enforcing transaction finality. This apparatus encapsulates trustless arbitrage dynamics.](https://crypto.greeks.live/wp-content/uploads/2025/10/Conceptual-Visualization-of-Decentralized-Exchange-Automated-Market-Maker-Mechanism-Precision-and-Settlement-Finality.jpg)

Solutions include private transaction relay services (like Flashbots Protect) and encryption/sequencing architectures to obscure order flow.

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