In late 2021, two NFT lending protocol projects were released – Drops and JPEG’D. These projects both aimed to bridge the gap between NFTs and DeFi, allowing users to use their NFT digital collections as collateral on stablecoin minting loans.
Both of these projects essentially boost the utility of NFTs, giving them further functionality that can enable users to gain a passive income from their NFTs. Instead of just owning the NFTs, the collateral and minting of stablecoins allow them to then exchange those stablecoins for other cryptocurrencies. With this, NFTs become the first point in a long line that leads to crypto staking and yield farming.
Through this chain, users of either platform can turn idle NFT assets that are within their portfolio into active methods that can be leveraged to earn them a passive form of income.
In this article, we’ll be exploring both of these services, touching of what they offer and outlining the core differences between them. If you’re on the fence about which service to use, we’ll make the differences clear so that you can decide which is right for you.
Let’s get right into it!
What is Drops
Founded in October 2020, Drops noticed a hole in the market for specialized field loans, moving to fill that gap. Their central purpose is to allow individuals to use any type of asset as collateral in a lending pool. While typical lending pools only allow for cryptocurrency or stablecoins to be added to the pool, Drops accepts NFTs, Metaverse items, and DeFi tokens as collateral.
This specialized form of collateral makes Drops an expert loaning service, allowing their users to make the most of all of their blockchain assets. The central goal of this is allowing asset owners and digital creators to reach a much larger audience with the NFTs that they hold.
By providing an additional use case for NFTs, Drops become a firm supporter of this ecosystem, generating excitement around NFTs and providing utility.
What is JPEG’D
JPEG’D was announced late in September 2021, positioning itself as the proprietor of non-fungible debt positions (NFDP). Following a similar structure to Drops, this platform allows users trustless and permissionless debt positioning. Instead of using capital, users are able to put down NFTs (specifically Cryptopunks), as these have the most liquidity and highest capitalization.
Users are able to deposit their Cryptopunk holders into the JPEG’D NFDP and mint synthetic stablecoins from this. This transforms Cryptopunk holders from static investments that gather digital dust in a wallet to actual active investments that can be used in high yield initiatives.
This whole protocol is overseen by JPEG, which is the governance token of the platform. Their central goal is to expand the NFT space into music albums, royalties, and more, boosting the application of NFTs in society.
Central Difference Between Them
While both Drops and JPEG’D do a very similar thing in turning NFTs into active assets, there is one central difference. While Drops allows any form of digital asset to become collateral, JPEG’D currently only allows NFTs within the CryptoPunks sphere onto their platform.
Due to this, although JPEG’d and Drops started their journeys at a very similar time, Drops seems to have much more actual utility. Considering that not everyone has a CryptoPunks NFT, Drops poses itself as a more open, collective, and accessible NFT collateral platform.
Target Audience
The target audience of these two services have crossovers, but are far from the same. Starting with Drops, their main audience is NFT owners and DeFi asset holders. Considering that they aim to boost the amount of utility that NFTs have, they direct target the community that engages with NFTs, expanding their utility and, therefore, their value.
As the Metaverse continues to expand and NFTs become more mainstream, Drops directly targets these audience members with their financing options.
On the other hand, while JPEG’D also claims it is acting in favor of the NFT community, limiting their NFT collateral options to only Cryptopunks NFTs actually only benefit that one project. Instead of benefitting all NFTs, the only collection that is set to gain from this increased utility is Cryptopunks themselves.
Considering that JPEG’D is run by a completely anonymous team, it’s fairly strange that they’re concentrating only on this one collection. While speculation, many are assuming that the creators of Cryptopunks are, in some way, involved within this project.
Additionally, a further distinction between these two services is that while Drops can be used by anyone around the world, JPEG’d is only allowing citizens that are not in the U.S. or OFAC-sanctioned countries to participate in their token generation events.
Key Features
Within Drops, there are three central features that keep the application running effectively.
These are:
- Borrowing – Users are able to supply their NFTs as collateral within liquidity pools. By doing this, they can borrow against their NFTs, providing sizeable returns and getting short-term loans from this system that can net them money.
- NFT Loans – As you put an NFT down as collateral, you’ll be able to get a trustless loan without having to wait for a long period of time for your case to be reviewed. Due to the permissionless NFT Lending Pools by Drops, it couldn’t be easier to put your NFT down as collateral on loan and then make those coins work for you.
- Active Yield – NFTs, although an asset that could appreciate in value, mostly just sits there doing absolutely nothing. Drops turns this concept on its head, allowing digital asset owners to put their NFTs into lending pools and then use them to get an active income. Considering they still own the NFT, this is an effective way of thoroughly boosting the potential returns they can access.
To put it simply, Drops is all about using NFTs as collateral and then reaping the rewards of lending pools.
On the other hand, there is only one central feature of JPEG’D, which encompasses the whole active process. This function is the lending protocol, which is:
- Lending Protocol – When an owner of a Cryptopunks NFT puts their punk into a JPEG’D vault, they are then able to mint PUSd. With this stablecoin, they will then be able to exchange the minted token for other cryptocurrencies, then staking them to earn a yield on their DeFi investments.
This protocol effectively boosts what you can do with NFTs purchased from the Cryptopunks collection.
What’s the difference?
Both Drops and JPEG’D offer NFT lending protocols. The only difference is that within Drops, you have more flexibility on which NFTs you can actually offer into the pools. Also, considering the vaster pool of NFTs that can be entered into Drops, it brings further utilities to NFTs as a whole, rather than just extending the utility of CryptoPunks.
Final Thoughts
Drops and JPEG’D are two lending protocols that allow users to put up their NFTs as collateral, receiving stablecoin within either of the platforms. From there, those stablecoins can be exchanged for cryptocurrency, which can then be staked to earn users a passive income.
While yield farming is not a new phenomenon in the crypto community, using NFTs as collateral is, with these platforms paving the way to bridge NFTs and DeFi.
While Drops currently has more utility, allowing any NFT to be used, if JPEG’D incorporates other NFTs in the future, it could easily catch up to Drop’s current performance.
