Intro
2021 has been a breakout year for NFT. Not long ago, Beeple sold his artworks for a staggering USD 69.3 Million as an NFT, marking another key milestone in crypto history comparable to the “Bitcoin for Pizza” story.
Apart from the eye-grabbing drama and frenzy, both events have a more profound significance by propelling bitcoin and NFTs from an echo chamber to the awareness of the mass: One brought bitcoin into physical transactions for the first time, the other brought the obscure “ERC 721” token to the glamour table of art.
Just as Bitcoin is definitely worth more than just buying pizza, the value of NFT is more than just giving fame to digital artists.
Lasse Clausen, a partner at venture capital firm 1kx said in a press release: “As NFTs re-imagined how we produce and define ownership of digital content online, we’ll also, in turn, begin to re-imagine a whole new category of financial services based on these new building blocks. ”
As the NFT market continues to expand, we are seeing increasing needs for marketplaces, liquidity, and derivatives.
Here is where DeFi comes into play.
The DeFi ecosystem now represents an expansive network of integrated protocols and financial instruments worth more than $53 billion, with ever-expanding services ranging from stablecoins to lending and borrowing, prediction markets, margin trading, payments, insurance, gaming, etc.
By combing NFT with Defi, we can build a whole new category of financial services.
Here’re some ideas:
1. Collateralized lending by NFT
As NFT represents unique items, most NFTs will have poor liquidity if only peer-to-peer buying and selling transactions are available.
Platforms such as NFTi allow users to use their NFT as collateral to obtain loans, just like people can pledge their collections for cash in the physical world. NFT artwork, Axie Infinity plots, or CryptoPunks can be used as collateral.
Once the loan and interest are repaid, users can get their NFTs back from the escrow contract.
DeFi lending platforms like Compound, Aave, and MakerDAO are also adding support for NFT assets in using smart contracts to drive the management of collaterals.
2. Decentralized price discovery
Pricing is a particularly important aspect if NFT assets are to be used within the broader financial markets. Just like valuation agencies that provide a valuation for art pieces, new projects such as crowdsourced NFT valuation project Upshot are also aiming to solve the NFT price discovery problem by paying experts for honest appraisals and enabling a number of powerful new DeFi primitives.
Price discovery is just the beginning aspect of NFT’s road towards “DeFilisation”. As NFTs begin to obtain their price valuation, NFT assets continue to look into the DeFi world to add benefits to themselves.
3. Fractional Ownership of collective work
Many creative works have more than one author, for example, a song, a game, a movie, or even a dApp are all made from collective intelligence. DeFi products like NIFTEX allow creators to earn royalties on the trading of fractional representation of the asset, as well as splitting governance over the underlying NFTs into fractions for more fine-grained ownership.
Creative works may also have multiple patrons. Novelist Emily Segal raised about $50,000 (25 ETH) for her next novel, and the contributors collectively receive NOVEL, a token representing 70% ownership of the work. If the NFT is sold at a higher price, the 104 NOVEL token holders are entitled to a pro-rata share of the profits.
NFT is not limited to ownership representation, it can also be a revenue-bearing asset. A lyricist of a song might hold an NFT for 10% of the future live-streaming revenue, he/she can sell, collateralize, or provide liquidity by DeFi tools to cash in on new music equipment.
4. NFT, DeFi and gaming
Gaming NFTs represent 10.2% of the overall NFT market distribution. As there are completely digital native origins, natural token trading behavior, and a huge user base in the gaming world, gaming NFTs are expected to skyrocket on the way to ETH2.
An example of combining Gaming NFTs and DeFi is Aavegotchi, which is a fully decentralized collection game. It aims to “leverage the explosive potential of both NFT markets and DeFi markets combined.” The Aavegotchi’s earn value over time as it earns yield from Aave’s A tokens (such as aUSDC or aETH) and has DAO-governed game mechanics.
We can take it as a small game or a gamified DeFi+NFT project. Its innovative approach will inspire more projects in both the gaming and DeFi worlds.
In the future, NFT-X-NFT swaps will become a reality through the additional trading possibilities and liquidity Defi offers to NFT. When the time comes, we can easily exchange Game A’s account for Game B’s assets.
Higher interoperability will also contribute to the prosperity of the gaming community and virtual assets.
Synthetic assets
Synthetic assets are products that mimic other financial instruments. This concept can be used to enhance the liquidity and market access of NFTs.
NFTs are minted on different blockchains, which can be inconvenient for potential buyers. In addition, some buyers may only want to speculate on the price of the NFT rather than actually own it.
Synthetic asset-based projects like Phantom can give users of ethereum, conflux, and BSC chains exposure to the price of different NFTs via an Oracle. Such convenience will reduce the friction of NFT transactions and facilitate the adoption.
What else will Phantom do with NFT?
Phantom believes that NFT & DeFi are still babies in the crypto-economic, and they need each other.
If NFT projects are to add meaningful value to the assets they represent and expand their influences to the mainstream, they must also be combined with other elements of the blockchain and financial technology.
The pNFT asset in Phantom is one form of providing liquidity to NFT, and in the future Phantom will also integrate NFT casting platforms and trading markets to allow all types of NFT projects to access liquidity pools and constructively leverage speculative power.
Using the Defi infrastructure, NFT can bring about change in many more areas than just benefiting artists, including video games, digital identities, licensing, certificates, and even real-estate ownership.
Phantom wants to find new opportunities for people who create value but don’t yet enjoy a fair return, so stay tuned as we follow up with pioneers in different fields.
⚡️ Find out more about Phantom Protocol:
- Twitter: https://twitter.com/PhantomDefi
- Telegram: https://t.me/PhantomProtocol
- Telegram Channel: https://t.me/PhantomProtocol_Announcement
