After the DeFi fever came to an end, NFT faintly became a new hot spot in the blockchain industry. In this article, we will discuss why NFT will become the next development trend after farming income and staking; the impact of NFT and possible problems, and analyze the reasons why NFT will take over DeFi.
NFT market milestones
NFT has generally had a huge impact on the encryption industry in the past three months.
The success of Rarible’s liquidity mining incentives is an example of how the NFT market can create wealth by incentivizing DeFi farmers to purchase encrypted artworks and collectibles to earn RARI tokens.
Dapper Labs’ NBA Top Shot was also a huge success. The NBA Finals moment cards and collectibles that were launched earlier this week sold out within a few hours. Let’s first take a look at what is NFT?
What is NFT?
The full name of NFT is Non-FungibleToken (non-fungible token), it is a special type of cryptocurrency token, it must be a unique NFT. For example, 1 BTC in your hand is the same as 1 BTC in the hands of other people. They have the same anchor value and can be exchanged at will.
Non-homogeneous token (NFT) is a unique Token in the vernacular. Even in the same system, NFT exists separately. And unlike BTC and ETH, which can be divided into 0.1 or 0.0002, the unit of NFT is always 1!
It sounds complicated, but it is not difficult to understand. Let’s say you want to build a website, but the domain name you like has been squashed, but you see it being sold at a domain auction. You bought this domain name because it is unique. This is what it feels like to have NFT.
NFT can be a kind of collectibles (CryptoKitties), used in games (Axie Infinity), metaverse (Decentraland), tokenized real assets (UpLand) and domain names. We can even use NFTs for sports, music, event ticketing, and art.
But NFT does not just have something unique. The economic value of NFT is even greater than most tokens, and some can even sell for more than 100,000 US dollars.
In July 2020, a painting titled “Picasso’s Bull” was sold for US$55,000, and the price was as high as US$55,000. A few days later, another auction broke this record. A work titled “Right Place&Right Time” sold for $100,000. On October 7, another work titled “Portrait of the Soul” surpassed the above two records, and it was sold at Christie’s for $130,000.
NFT takes over DeFi for three reasons
At the beginning of July 2020, NFT’s total sales revenue reached 100 million US dollars, and this is just the beginning of this wave. Now, three reasons explain why NFT may take over the next wave of DEFI.
1. NFT, simple and fun
For users, the process of collecting pictures, cards, virtual pets, items (clothes, weapons, accessories), etc. is an easy concept to realize, and it does not have any difficulties and arduous exploration. On the contrary, when users strive to be different and collect the most precious things, this is also an alternative interest. Users do not think that processes are an accumulation of economic value (although they can be priced and traded), but merely a game that satisfies their spirit.
NFT solves the problem of allowing users to feel a visualization of intangible objects (digital objects) with permissions, transparent data, and immutable historical information (collectively referred to as metadata).
2. Attractive investment
Valuation of scarce NFT tokens is a zero-sum game.
A person buys NFT tokens because he sees and believes that for some reason, NFT tokens can increase in value in the future, because there will be a demand for it in the market.
The network surrounding people or things is too large to measure, and its influence is bound to drive its own success. This is like an artist who has a huge fan base, or a limited-release artwork that many people desire.
Obviously, the valuation will increase in proportion to the growth of market demand, and vice versa. NFT must be linked to the psychological demands of users, especially the desire for scarcity, otherwise NFT will become worthless.
3. Asian market
Under the positive influence of the Asian market, NFT has a great opportunity to flourish. Due to the cultural origins of Japan, South Korea, China and other countries, there is great interest in collectibles and fun games. Asians have a preference for typical mascots, characters and images.
Will NFT sweep the DeFi world?
NFT is indeed valuable. It is not just a token stored in a wallet. We can incorporate it into the concept of decentralized finance.
NFT also has great potential in DeFi. Many DeFi loan agreements have collateral, that is, if the borrower defaults, the borrower can seize the asset (collateral) and then sell it to offset the loss. In DeFi, one of the most interesting ideas is to use NFT as collateral. This means that we can provide an NFT, whether it is a piece of land in the Sandbox, or a tokenized painting, or a meme collection, all can be used as collateral so that we can borrow money from the DeFi platform.
Problems with NFT in DeFi
The main problem with NFT in DeFi is that the value of the collateral provided can be easily measured by price oracles, which is the typical case of DeFi loans such as Aave and Flamingo. This means that prices will be based on multiple sources of liquidity, either from centralization or from DEX. In this case, it is a bit difficult to integrate NFT into DeFi because NFT is not as liquid as cash or tokens.
Unlike DeFi, users’ interests and needs are driven by applications and profitability, while the NFT market is mainly driven by a profound psychological model. As the world becomes more and more digital, more items will only appear in the form of digital versions. In this case, the solution to the problem of property rights protection is NFT.
solution
The NFTfi project provides a good solution. In NFTfi, the borrower can provide NFT as collateral, and the lender can choose which NFT to accept before agreeing to borrow. The NFT collateral is kept in a custody contract. If the borrower cannot pay the loan + interest, the NFT will be automatically transferred to the lender.
In addition to mortgages, NFTs can also be used for other financial products, such as insurance or bonds. Yinsure of Yearn Finance is a good example, which covers Nexus Mutual financial products. In addition, insurance NFT can be traded in other DeFi markets, such as Aave, dydyx, and Rarible.
Recently, some DeFi native applications such as staking, yield (NFT) farming and liquidity mining are used in DeFi-NFT enterprises. One example is Meme Protocol, where DeFi users can pledge assets to earn limited edition NFT memes by well-known Ethereum artists.
DeFi x NFT project
Since NFT has been applied in DeFi, NFT soon occupied the DeFi and blockchain communities. The following are some NFT-DeFi projects that often become topics in the crypto community. We can see the vigorous development of NFT in the DeFi field from the increase in prices.
From an overall point of view, the current NFT+DeFi projects are mainly divided into three categories:
The first category is that DeFi projects introduce the concept of NFT, such as MEME, Dego, etc.;
The second type is to mortgage NFT for DeFi mining, such as WHALE, Cargo;
The third type of NFT platform introduces transaction mining or liquid mining mode, such as the more popular Rarible. Rarible is an NFT trading platform just established this year. Users can mint coins or trade digital collectibles.
How to get NFT
The easiest way is to get NFT through airdrop or gift.
Recently, Banano’s NFT and WAX versions of Cryptomonkeys airdropped 415 rare NFT cards, which can be claimed for a limited time. Sandbox did a similar thing, by hunting puzzles, the prize was $5,000 worth of land in the sandbox Metaverse.
We can also obtain NFT through purchase, which means transferring ownership and all NFT attributes to the buyer. In addition, with the rise of NFT-DeFi companies, we can use homogenized tokens as pledge deposits to obtain some rare NFTs. What we look for is the potential for future price increases.
to sum up
With the involvement of crypto venture capital companies and the issuance of similar DeFi governance tokens, as well as record-breaking sales, NFT technology will continue to develop and stimulate the industry to continue to improve. In order to adapt to this realistic demand, many game companies and game players will enter the NFT field. NFT has indeed attracted the attention of investors.
Without any responsibility, if DeFi is the tipping point of the July wave market, NFT may lead the next bull market. We have reason to believe that the concepts of DeFi and NFT in the future will become one of the most important Internet concepts.
