If only one word is used to summarize the blockchain industry in 2020, the word should be DeFi. What about the next keyword?
The answer in many people’s minds is: NFT. However, a natural question arises: if NFT meets DeFi, what sparks will collide?
At the crossroads of NFT and DeFi, more projects gradually surfaced. Under the aura of the current red DeFi and the highly anticipated NFT in the future, what projects are worth our attention? This article takes you to understand.
DeFi heat wave
As the number one DeFi project Uniswap announced the issuance of UNI tokens and initiated liquidity mining, it can be foreseen that the popularity of DeFi will continue for some time to come.
What does DeFi mean to finance? It can be said that DeFi is using a gamification method to splice the building blocks of the future open financial foundation.
We can see the chaos of the moment, the crazy Ponzi design and the FOMO mood that permeates from time to time. Excluding these, we can also see that when Bitcoin opened Pandora’s box, when the wind in the box inevitably blows to the financial sector, what is happening is the current DeFi experiment: DEX, AMM, and smart contract-guaranteed loans , Derivatives, decentralized insurance, etc., all models that can take effect in traditional finance can be implemented in DeFi.
NFT is still in its early stages
Some people say: NFT is the hidden line of investment in 2020.
The innovation that started with Satoshi Nakamoto has never stopped. The imitation and creativity of the financial field gradually formed the subdivision of DeFi. And another new field has gradually emerged: NFT, non-homogeneous tokens, to represent any token assets that are different from each other.
Supporters of NFT can’t hide their ambitions and expectations: NFT will reshape the game field; NFT will transform the traditional collectibles market; NFT can even have an impact on the traditional real estate industry. Of course, some critics will pour cold water on this: NFT is still only a small hobby in a small circle. It lacks uniform standards and does not have large funds. It will take a long time for NFT to mature.
Of course, like the early stages of any field, DeFi and NFT are facing a high degree of uncertainty. Recently, DeFi has gradually become popular, but it has only been three months. Under the influence of mobile mining, everyone is vying to be a “farmer”, with sweet potato, potato and yam pasta, pearl, jade, agate and diamonds, and projects have emerged one after another. Behind the fact that a number of newly rich and wealthy farmers are constantly making more than ten thousand dollars each day, they are also stolen along with the fall of each project.
The trading volume of NFT is not tepid. Since CryptoKitties’ short-lived highlights 3 years ago, it was blocked by Ethereum and became immobile. In 2020, the NFT market has just picked up.
Source: NonFungible.com
But despite the overall situation, from a few data, we also see that NFT has gradually emerged, although it is still niche.
Data from nonfungible.com shows that in the past 7 days, the total number of NFT sales was 9353 pieces and the total transaction amount was US$988,649.
On DCLBlogger’s Twitter, a series of areas where NFT has brought changes are listed, among them:
“We have seen that some artists’ works can sell for more than US$50,000 in one day, and some artists can even sell for more than US$100,000. SuperRare alone has a transaction volume of US$2.3 million.”
DeFi and NFT connection
Although DeFi and NFT have different concerns, looking at it from another angle, you may have a new understanding of the relationship between NFT and DeFi.
The full name of NFT is Non Fungible Token, a non-homogeneous token. In the final analysis, it is nothing more than a token, which can be traded and transferred. What traditional Token can do, NFT also accepts all orders, but the value of the assets is different.
The current DeFi uses high-quality assets under the type of FT (homogeneous tokens, such as BTC, ETH, etc.) as the underlying assets, acting as collateral for lease, and acting as market-making assets in AMM. Then the extension of DeFi to NFT tokens will also produce some new feasibility. In the following, we will look at a few examples in this regard.
It should be reminded that both DeFi and NFT are high-risk and newly emerging sub-fields. This article does not constitute any investment advice, but is only for information reference.
WhaleShark, a British overseas Chinese and a well-known avid collector in the NFT field, initiated the project: https://whale.me.
According to his introduction:
WHALE is a social currency whose value is supported by the most valuable NFT collections in the world, promoted by the most dynamic community on NFTland, and achieved stability through DeFi mining and H2P (Hold-to-Play) proposals increase.
(In this project) There are no loans, no liabilities, and no legal fees.
Simply put, users can mortgage valuable NFT as collateral and issue WHALE tokens. Today, the value of NFT as collateral in the vault of the project exceeds one million US dollars. According to Mason Nystrom’s article, most of the NFT assets used as collateral in the project are currently provided by WhaleShark, one of the largest buyers in the NFT market.
According to Messari’s data, more than half of the NFT in the project vault comes from Sandbox. Among the four projects SuperRare, Gods Unchained, CryptoVoxels and The Sandbox, NFT assets account for 80% of the total portfolio value. (Data source: Messari)
One of the problems with collateralizing NFT to create Whale is: NFT pricing itself often cannot be standardized. Unlike FT, how to ensure the issuance mechanism? Since its launch in May this year, WHALE tokens have gone from 0.2 USD to a maximum of 6.7 USD. (The non-small display shows that the current price has fallen back to US$4.55)
According to an interview by WhaleShark, most of the NFTs in the vault are electronic artworks, and NonFungible will conduct vault audits for the project every month. The upper limit of WHALE tokens is 10 million, of which 50% are held by the initiator WhaleShark, and 50,000 are unlocked every month, of which 20,000 WHALE tokens will be used to directly purchase NFTs, which will be operated by WhaleShark himself.
Source: OpenSea, WHALE’s vault
Whale tokens have several purposes:
For general purposes, purchase NFTs, such as from the vault or WHALE’s cooperative merchants and platforms;
For lease purposes, NFT blockchain real estate can be rented in the vault through WHALE tokens;
For consulting services, you can pay WHALE in exchange for business consulting services from WhaleShark.
In addition, the WHALE community has set up mining incentives:
Participants in the Uniswap mining pool can share 5000 WHALE rewards every month
Encrypted artwork creators can pledge their NFT works or contracts to obtain more WHALE tokens.
In terms of liquidity mining, as long as users provide liquid funds of more than US$500 in the Uniswap mining pool of the project party, 5000 WHALE tokens will be distributed in proportion to the share of the mining pool every month. In addition, the threshold funds for participating in the mining pool will increase by $50 each month, and in September it is $550.
In terms of motivating NFT artists to participate in creation, the project party has established a monthly NFT mining reward pool of 2000 WHALE tokens, which will be distributed to 10 NFT creators. The NFT created by them is exclusively sold and priced at WHALE. The project team will screen the candidates according to their qualifications, and they will continue to enjoy the benefits for three months after the selection.
The innovation of WHALE lies in the use of high-value NFT as collateral to issue tokens. This method may be used for reference by some other project parties. However, there are still many issues to be refined, such as the value of NFT as collateral and the application scenarios of the created tokens.
Liquidity mining mining NFT
WHALE chose to use NFT as collateral to generate social tokens. On the other hand, the gameplay is: Participate in DeFi mining and get tradable NFT.
CryptoWine targets DeFi miners.
GRAP grape coins, a mining currency for a DeFi liquidity mining project, can be obtained by providing liquidity, and there is also a direct purchase method on Uniswap. How to combine DeFi mining with NFT? The gameplay of CryptoWine is like this:
In the GRAP pledge pool, every player can randomly get the NFT airdrop of CryptoWine. CryptoWIne is a cryptographic painting with the theme of wine bottles;
After the player has obtained CryptoWine, they need to go through the extraction step, which consumes brewing points as a handling fee, and the GRAP pledge pool will provide the player with brewing points;
The fee for brewing scores will be injected into the prize pool and used to provide incentives to artists;
In addition, the CryptoWine collected by the player will have a corresponding score, which combines the CryptoWine score and the brewing score obtained by the player to rank the player. The top 3 can share the prize pool, and the remaining 1/8 will be allocated to the artists who provide works.
The gameplay of CryptoWine is more like a creative experiment. See what new ideas can be gained from the gameplay of DeFi + NFT. The NFT applies to the characteristics of encrypted paintings, and it can be combined with the rewards that DeFi liquidity incentives bring to the crowd, and further form its own community culture in different DeFi communities. I believe this kind of gameplay of CryptoWine will be seen in more DeFi projects.
So, what is the gameplay of Aircoin mining + NFT? Some people in the community really do this: MEME, a NFT + DeFi liquid mining project derived from a joke.
This project originated from a tweet: On August 15th, Jordan Lyall, the head of DeFi products at ConsenSys, satirized DeFi as “degenerate finance”. Just use an Emoji as a logo and copy it with a verified contract to create it. In fact, many DeFi projects on the market are also true.
It took a few hours for the community to create MEME coins and turn this joke into a DeFi project. Then Jordan Lyall and the community introduced NFT into the liquid mining design. Players who pledge MEME tokens on the NFT farm can harvest pineapple points (pineapple is the logo of MEME), and then exchange pineapple points for NFT collection cards. This kind of collection card can be directly linked to OpenSea for sale.
Use the pineapple points obtained from mining to exchange for NFT collectibles
This project also has a series of interesting MEME pictures, you can search for them if you are interested.
Interest-bearing Token generates NFT
Aavegotchi is a project we will focus on today, and the token name is GHST.
Aavegotchi is an NFT project supported by DeFi. Let’s talk separately, first introduce one aspect of DeFi.
Aave is a DeFi platform focusing on asset lending. Users pledge their assets on the Aave platform and obtain interest-bearing tokens aToken. With aToken, users can get interest sharing. For example, if a user deposits DAI in Aave, they will receive aDAI as a deposit certificate and interest-bearing token, sharing the interest of the DAI deposit.
Aavegotchi is the first NFT platform based on aToken in the Aave ecosystem. Aavegotchi can be regarded as a kind of NFT digital collectibles, implemented through the ERC721 standard. Each Aavegotchi has its own characteristics, and its value and scarcity are also different. To create Aavegotchi, you need to mortgage the aforementioned aToken, which is a typical project that combines DeFi + NFT.
In Aavegotchi, the value and scarcity of Aavegotchi are determined according to the number of mortgage assets, characteristics and corresponding game equipment. Generally, the characteristics of NFT collections are certain, but Aavegotchi has growth characteristics, and its scarcity will change with different levels and game equipment.
In the Aavegotchi document, the channels for value transfer are listed:
Aavegotchi as a side of the game
The Aavegotchi project has several main factors: Portal, GHST token, AavegotchiDAO.
The user purchases Portal through GHST tokens. The Portal in the game is set as the portal of the Aavegotchi Void World and the Human Ether World.
After the user obtains the Portal, he can open the portal and choose from 10 different Aavegotchis. Not only that, you also need to mortgage aToken before you can get Aavegotchi, which is equivalent to connecting to the void world through a portal to obtain Aavegotchi elves. After the collateral is retrieved, Aavegotchi will be destroyed. Aavegotchi is the NFT obtained by using DeFi assets as collateral. In this way, the project team gave Aavegotchi intrinsic value.
As a side of NFT, Aavegotchi’s value will be determined based on its characteristics and the scarcity of game equipment. The greater the scarcity, the greater the value. Aavegotchi can be traded through NFT platforms such as OpenSea.
More details of GHST token
GHST can be used to purchase game equipment and consumables to increase the scarcity of Aavegotchi. GHST is also a governance token, because the threshold of community governance voting requires participants to have 1 Aavegotchi and GHST token. In addition, in AavegotchiDAO 2.0, users who participate in voting can get GHST rewards.
In addition to the platform mechanism design itself, some special factors have been introduced in the issuance of GHST tokens: Bond Curve issuance and DAICO mechanisms.
The so-called DAICO, first proposed by Vitalik, can be understood as a staged fundraising. Specifically for Aavegotchi, the first stage was to raise $250,000 from community members. Most GHST tokens are sold in the second and third phases, accepting DAI as a payment token.
The private placement round is aimed at a specific group of people (with KYC requirements), 5,000,000 GHST tokens, and the price is 0.05 DAI / GHST. The participation threshold is 20,000 DAI, and the lock-up period is 1 year;
Pre-sale round, 500,000 GHST tokens, the price is 0.1 DAI / GHST, there are KYC requirements, and the lock-up period is one year;
Token Bonding Curve (TBC) Token Bonding Curve (TBC) is on sale with KYC requirements and is in progress. There is no lock-up period. It is issued when bought, and burned when sold. There is no issuance cap.
This project provides a creative way to combine with Aave’s DeFi platform and use interest-bearing tokens as collateral to generate NFT assets. Combining DeFi and NFT in a novel way, it is expected to attract a group of Aave Of liquidity miners join. The platform is scheduled to be tested online at the end of October.
NFT mining
yinsure.finance is a decentralized insurance platform created by Andre Cronje, the founder of the year (YFI, commonly known as the big uncle). Currently, it provides insurance services for DeFi platforms including Balancer Labs, Compound, Curve Finance, Synthetix and iearn finance. The bottom layer provides support for this is Nexus Mutual.
The special feature of yinsure.finance is that it uses the NFT format to tokenize the insurance policy, which is called yInsureNFT. In addition to holding these NFT insurance policies, they can also be traded on the NFT market or participate in mining.
NFT market transactions for insurance policies
NFT trading platform Rarible announced in September that it supports NFT insurance policies. It is currently available.
Through the NFT method, decentralized insurance policies can be directly traded, and the NFT type is also listed on the OpenSea platform.
Policy re-mining: SAFE
On the platform of Yieldfarming.insure, two types of NFT assets are supported: yNFT (ETH) and yNFT (DAI), which are insurance policies for ETH and DAI respectively.
In a nutshell, yInsurance underwrites insurance under Nexus Mutual, and NFT the insurance policy in ERC721 format, and the resulting asset is called yNFT. In addition to being able to buy and sell in NFT trading markets such as OpenSea and Rarible, yNFT can also be mortgaged to a third-party platform for mining and receive SAFE token rewards. However, what needs to be reminded here is that, like traditional insurance policies, if the insurance does not need to be reported for reimbursement once the insurance expires, the corresponding yNFT asset value is 0, which becomes an invalid policy.
Using NFT to manage DeFi’s decentralized insurance, and then mining the insurance policy, adding a layer of incentives, I have to say: the uncle community will have a lot of fun.
Other forms of NFT + DeFi
In addition to projects that already have actual products running, there are also several interesting product directions for NFT + DeFi, which are also mentioned here.
NFT + lease transaction: Chintai and Yiedl examples
Chintai is one of the earliest DeFi projects on the EOS blockchain. Before the EOS REX system went live, Chintai created a P2P leasing platform to provide a resource leasing method for the resources on the EOS public chain (CPU/NET), allowing EOS holders to rent their own CPU resources through the Chintai platform.
And programmers or DApp players can rent resources such as CPU/NET without additional purchases. Especially when the price of CPU/NET resources on the EOS blockchain was high at the end of 2018, Chintai played a role as a buffer.
The reason why Chintai is mentioned here, in the first half of 2019, Chintai proposed a NFT design idea: separate the ownership and use rights of the NFT, and add the lease function of the NFT to the NFT standard agreement, so that the use of these standards can achieve NFT Token projects natively support NFT leasing.
For example, if an asset in an RPG game uses the NFT standard to implement its heroes or props, then game players can rent out the NFT to others. Since the NFT standard natively supports the leasing function, the owner of the NFT asset can still maintain the ownership, but only rent the right to use it to others, thereby obtaining benefits. In the game through levels, team battles, or dungeon-opened battles, players can enhance their combat capabilities by temporarily renting heroes and win in-game victory.
In this way, the NFT + rental DeFi gameplay is combined to increase the revenue opportunities for gamers. In addition to this special method of separating ownership and usage rights, Yiedl, a Tokyo-based crypto startup, also announced that it will create a P2P market for NFT lending services based on the ERC721 standard. However, there is no specific product realization yet. However, with the development of the NFT + DeFi field, similar products should be realized soon.
NFT as collateral for borrowing
Unlike NFT’s own P2P lending, one possible idea is to use NFT as collateral to borrow assets from the DeFi platform. WHALE’s approach is similar, except that after WHALE mortgages the NFT, it is used to issue social tokens. The same idea can also be extended: mortgage NFT to issue stable coins, or vice versa, mortgage stable coins for liquidity mining, and obtain NFT collectibles or collectibles qualifications.
If you open your mind and treat NFT as a special tradable token, you can find that there are still considerable areas to be explored in the current DeFi field. Of course, if NFT is used as collateral, how to price NFT will itself become a topic of long-term discussion.
summary
DeFi is in the ascendant, and the popularity of NFT is increasing. Some people even call it the hidden investment line in 2020. And what kind of new ideas can NFT encounter DeFi? This article analyzes and explores the current five directions and seven projects in the NFT + DeFi field, and hopes to provide readers’ reference.
When the DeFi heat wave rushes to the NFT field, as the explorers of NFT + DeFi come one after another, this field will be very exciting, of course, risks will follow.
