“No visible sign of the market collapse that preceded the crypto-palooza,” is how a Yahoo Finance live anchor and author described an NFT conference that took place in Minneapolis in late-May, after NFT prices collectively collapsed amid a broader deep correction in crypto prices and a severe downturn in the U.S. and global stock market:
“And yet, in the prior six weeks, more than $1 trillion in crypto assets had been wiped away while the value of NFTs fell more than 80% from their market peak… For the serial entrepreneur and host of the festivities, the steep losses in the cryptocurrency industry merely vindicated his view.”
Gary Vaynerchuk, the NFT conference’s host, told Yahoo Finance:
“I said it in August, I said it in July, and I said it in May. I saw this coming — that [a crash driven by short-term greed] is absolutely potentially what we’re in. It’s just starting, there’s a correction.”
What is it all these non-fungible token conference goers are so enthusiastic about, that they are undeterred by this year’s steep losses in crypto prices on exchange markets, and the even steeper average haircut that many non-fungible tokens took of their previous all time high prices?
In short, why are these Ethereum and DeFi bulls so bullish for Ethereum and DeFi?
Non-Fungible Tokens Have A Long Way to Grow in Decentralized Finance
To answer that question, consider the present state of development of the NFT industry and the products with features and benefits that will meet all the promises of NFTs made by blockchain ventures, promoters, and investors.
Notice the rate at which progress is developing and evaluate the commercial value of NFT DeFi solutions once they’re built out to enterprise standards of reliability and good design that solves problems individuals and businesses pay money to have solved.
An NFT is a non-fungible token. So it is a unique record maintained on a blockchain.
Along with its uniqueness as a one-of-a-kind token, tokens on the most popular DeFi blockchains have either direct functionality or interoperability with tokens and chains that extend that functionality to them, for smart contracts.
So through smart contract functionality in tokens, NFTs and DeFi blockchain technology are giving rise to programmable money and automated, decentralized finance products on platforms built for peer-to-peer network architectures.
Their biggest enthusiasts believe NFTs will inevitably fuel massive new markets in lending as a natural consequence of forming the basic template for titling physical and digital property in an immutable, trustless, decentralized record-keeping database.
The advantages of blockchain are obvious to those who can understand what the blockchain accomplishes at the engineering / problem solving level of the challenges posed and the opportunities presented by the problem at large of distributed records and account keeping.
Trustless, permissionless, immutable— these advantages of blockchain can ultimately be summed up in the word security. The network architecture provides design and governance that enhance the security of your digital assets on a blockchain into a category of security that centralized solutions by definition do not provide.
But instead of giving you the ultimate guide to what is DeFi, I’ll leave here three major ways that NFTs can be used in DeFi:
Here Are Three Major Areas Where NFTs Can Be Used In DeFi
Digital Title and Key – Leveraging the smart contract features of DeFi blockchains like Ethereum to provide a blockchain-secured title of ownership to a physical item was an early use case for NFTs and blockchain computation networks like Ethereum. In 2019, William Shatner of Star Trek fame announced with Ethereum company Mattereum that they would be launching “digital twins” that performed this titling service. NFT titles to financeable assets like homes and automobiles will disrupt finance soon. NFT titles to financeable assets like a bag of crypto are already disrupting finance. When the Metaverse opens up a fantastic virtual world of unique digital oddities, NFTs will once again disrupt finance, while serving as both title and direct digital key to unlock all sorts of digital goods.
Loan Facilities – Industry bulls believe NFTs will revolutionize lending, financing, and commercial account keeping. At present DeFi is limited by some natural constraints to the anonymous, peer-to-peer network model. Without KYC (know your customer) and credit checks, DeFi lenders typically lend at high percentage interest rates and only with high collateral requirements. The collateral is usually some form of crypto and validated by the smart lending contract as secured in escrow should the borrower default on the loan. This model is suitable for well-collateralized, anonymous borrowers who want to take out short term loans for leverage on market investments, a high risk-reward venture to be sure. But as NFTs become a more mainstream consumer solution, with holders caring about the security more than the anonymity, NFTs will be increasingly used in all aspects of loan finance over decentralized blockchain networks.
Remittances and Settlements – With the use of smart contracts, DeFi has already disrupted the traditional financial industry by providing users with a trustless, permissionless, immutable, and secure ledger of accounts to send and receive money as a remittance for payment online, in a thriving, borderless, low fee, high-velocity global cash ecosystem.
With non-fungible tokens, these payment solutions will be refined into more sophisticated systems for managing payments commercially, for B2B solutions, for accounts keeping, and for tracking inventory. Systems will be able to mint NFTs with values tables that are automatically changed for when inventory is manufactured, distributed, and sold, and for when cash is received.