The NFT encompasses a lot more than merely collectible artwork and works. Discover how NFTs can be used for more than their conventional use cases to store value on blockchains.
NFTs, or non-fungible tokens, have gained attention in both the blockchain community and the general public. However, we typically exclusively connect them to valuables and works of art. Decentralized finance is one of the applications of NFTs that has received the least attention to date (DeFi).
NFTs have started to carve out a position in the DeFi market apart from the artistic and creative side. Anyone who considers themselves to be a blockchain fan would do well to become familiar with this new development as they are inventing and challenging one of the oldest and most prosperous businesses.
What is DeFi?
Access to a variety of financial services, such as borrowing, lending, saving, trading, and providing liquidity, is made possible by DeFi via a blockchain-based platform. DeFi makes it simple to combine services to produce fresh, cutting-edge products.
DeFi has no intermediaries, which is one of its key characteristics. Users are still directly connected to the parties who wish to transact, lend, or do anything, despite the fact that a variety of decentralized applications and services (dApps) assist the procedures. any other pursuits with them.
Smart contracts, which are immutable sections of self-executing code on the blockchain, form the foundation of DeFi. The code cannot be modified once it has been placed on the blockchain. Most DeFi projects and applications use a token-based governance mechanism to conduct their operations in a decentralized fashion.
How do NFTs function with DeFi and store value?
As was already noted, NFT is frequently associated with fine art and collectibles. They can nevertheless store values in various ways, despite this.
NFT offers a technical means of producing true digital authenticity on the blockchain. There are many distinctive assets that are also valuable when it comes to finance and investing. Real estate and title deeds are a couple of examples.
How does NFT help DeFi?
The benefits of DeFi-linked decentralization can be maintained by placing these assets on-chain as virtual tokens, which offer transparent and verifiable means of engaging with others.
Such licenses may be sold using a blockchain system, which would establish an open market where buyers and sellers could negotiate the best prices. All licenses are distinct, hence they make a good use case for NFT encoding.
DeFi App for NFT
Although they still have a lot of unrealized potential, DeFi applications for NFTs are already in use.
The DeFi strategy often employs cryptocurrencies and fungible tokens as collateral for crypto-lending.
Now that many NFT collections have recognizable floors, using them as collateral is often not difficult. For instance, on the DeFi NFT lending platform, you could utilize a $200,000 Bored Ape Yacht Club (BAYC) NFT as security for a $100,000 loan.
Advantages of staked NFT
NFTs can be simply created to offer convenience and advantages to its owners. For instance, some DeFi initiatives restrict access to specific stake pools to owners of a particular NFT.
Based on how appealing the earnings of the staking pool are, this provides an NFT value.
DeFi governance often takes the form of token holders who, according to the number of tokens they have, have voting rights. Some DeFi projects are experimenting with adding permanent or council members to the process since they have identified difficulties with this format.
These DeFi projects permit the usage of NFTs that give their holders the ability to vote. These NFTs are frequently referred to as soul bound tokens (SBT), which denotes that they will always be kept in a particular wallet and are not transferrable.
DeFi NFT has increased.
You’ll start to see NFTs’ huge potential once you realize that they have worth independent of their typical application in other works of art and collectibles. Both DeFi and NFT are still very new technologies with a ways to go.
However, we have already begun to observe their evolution in response to more sophisticated and varied use cases. What began with games like Colored Coins and CryptoKitties roughly ten years ago is now realizing its full potential in the DeFi community.