Can NFT be Used in DeFi and What Can be the Role of NFT in DeFi?
Are you also amazed at the pace NFTs are emerging into the DeFi sector? Do you wonder what factors are responsible for this shift? This article is here to provide you with answers to all your possible quarries regarding NFT investing and DeFi. Let’s start with the basics!
How Do You Define NFT and DeFi?
NFTs are Non-fungible Tokens that have their value blocked in a specific asset such as real estate, digital and non-digital collectibles, domain names, etc. The value of NFT keeps fluctuating according to the market.
DeFi is Decentralized Finance, a financial system based on public blockchain technology such as Ethereum blockchain. In the DeFi ecosystem, you can save your money in digital wallets without paying fees to banks and financial institutions. Cryptocurrencies and smart contracts are some of the important DeFi tools.
The Process of NFTs Storing Value
NFT is based on the value proposition. You don’t necessarily buy the tokenized asset physically, but you pay for proof that it belongs to you. The value of the offering can determine its price. Many types of assets can be tokenized. Let’s take the example of real estate. Its value keeps fluctuating, and it demands a lot of paperwork. Its representation as a tokenized asset promotes easy transfer of ownership.
When you want to understand the application of NFT for DeFi, you need to understand the value unlocking system of DeFi.
Possibility of DeFi Unlocking the Value of NFT
Various financial instruments and processes are compatible with the DeFi ecosystem. NFT investing can also be easily included in the DeFi portfolio. DeFi can offer to unlockthe opportunity of the valuable assets listed under NFTs. The crucial role of NFT in the flexible transfer of ownership can be enhanced with DeFi domains and instruments.
Entry of NFT Investing in DeFi
While we are discussing the amalgamation of NFT and DeFi, the RARI governance token has already blurred the lines. Rarible is an NFT marketplace that promotes the creation of artists. It deals with buyers through RARI.
The creators and collectors with RARI tokens can vote for a platform upgrade. They also have a say in the moderation of the market. RARI featured an NFT index for creators to choose any piece of art as an NFT investment.
Application of NFT for DeFi
Many people still doubt that can NFT be used in DeFi. But with the increasing expansion and global reach of DeFi, new advantages of NFT application for DeFi are emerging. The most significant of them all is the convenience and simplicity added to the process of unlocking the value. Otherwise, it becomes challenging to determine the proper mechanism to evaluate the NFT.
With NFT,commercialization and ownership transfer of digital products and services can also be bought in the mainstream along with artistic creations. The future of the market with NFT stepping into the DeFi looks bright in the following ways:-
1. Enabling the Usage of NFT as Collateral
With the entry of NFT in the DeFi sector, it can be collateralized. It can benefit its owner in terms of value and getting credit from the market. The lender can evaluate the loan amount to be given against the NFT based on the owner’s price, their own calculation, and market evaluation.
For instance, the artworks and collectibles are quite extensively used as collaterals as physical assets. Now they can be useful as DeFi lending as well. The tokenization feature of NFT investing also helps the Decentralized Finance sectors in terms of increasing liquidity and mobility of the assets.
2. Resolving the Liquidity Issue of the Curve Model
The liquidity in DeFi is distributed via a curve model. The latest Defi protocol regarding liquidity pool is designed according to this curve model. However, sometimes it builds up the liquidity without any substantial return for the provider. With the application of NFT in DeFi, the liquidity providers will be able to select their preferred custom price size.
In this way, the liquidity provider can quickly evaluate their capital and catch the liquidity build-up in the curve model. In turn, they will have more exposure to the assets and less risk.
3. Monetization of Art and Collectibles
The world of art can significantly benefit from the coming together of NFT and DeFi. The creators can earn money through streaming revenue or selling their creations. These earnings can be verified. Thus they can become genuine and reliable collateral. All this while the ownership rights and profits belong to the original creator.
The Non-fungible Token units can successfully resolve the ongoing concerns of artists like royalty sharing and copyrights. An amazing feature of NFT investing is that the fans of the art can have its fractional ownership without purchasing it as a whole.
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