What could the integration between DeFi and NFTs mean for the global monetary landscape
Global financial systems and institutions appear to be searching for an asset class that will ensure liquidity without interference from central authorities, and non-fungible token (NFT)-based loans are thought to be the answer. From a monetary expert’s perspective, the integration between decentralized finance (DeFi) and NFTs could enable investors to use their NFTs as collateral in return for cryptocurrencies or fiat currency.
According to Nansen, a cryptocurrency and blockchain analytics platform, the highest NFT-based trade occurred around August 29, 2021, which witnessed the sale of 132,000 ETH, worth $422 million. The platform also highlighted the development of smart money related to this section, with the top 10 NFT traders making over $185 million in profits. “I believe NFTs can be pledged as collateral for a loan. NFTs are locked to a smart contract, once agreed for a certain period of time or until the borrowed amount (plus interest) is repaid. In the event the borrower is unable to to pay the loan on time, NFT is it
transferred to the lender’s wallet as collateral for the outstanding balance,” Abhay Aggarwal, founder and CEO, Colexion, an NFT marketplace, told FE Blockchain.
Insights from market-based research have shown that NFT-based loans allow users to pledge their NFTs for liquidity, without having to sell them permanently. As reported by Bybit Lean, a cryptocurrency knowledge platform, fractional ownership of NFTs can provide benefits such as improving asset class liquidity, helping investors quickly assess the market value of an asset, and can be a simple form of monetization.
“This collision of DeFi and NFTs has opened up opportunities for NFT holders by making it a more liquid asset. Rental gives NFT holders the ability to earn passive income from their NFT collections on their own terms, without having to bother about fractionation. This enables more liquidity to enter the market, as a costly NFT can be split into shares of value using fungible tokens,” said Amanjot Malhotra, Country Head of India, Bitay, a cryptocurrency exchange.
Reportedly, companies like Arcade, NFTfi, Nexo, among others, are some of the platforms that have inculcated NFT-based lending into their ecosystem. Other companies such as Unic.ly and NFTX.io are marketplaces that allow users to deposit their NFTs into a vault to mint ERC-20 tokens. In December 2021, Arcade closed a $15 million Series A funding round to provide secured loans connecting the NFTs to DeFi. It is believed that sectors such as art, luxury, real estate, entertainment, among others, are also expected to benefit from NFT and DeFi’s correlation.
Furthermore, market analysts believe that banks are aiming to use digital collectibles such as NFTs to support businesses to register and transfer digital assets on the blockchain, due to data security. As reported by bitsCrunch, a global data analytics company, users can post NFTs as collateral and credit providers can bid the amount they prefer. Furthermore, the marketplace may also allow users to choose between DAI and ETH as payment options.
“Instead of buying digital images, videos and game assets, we might buy real estate and stocks. I think this will mean a meta version where everything turns into an NFT token that can be bought with cryptocurrency. In the near future, companies will use NFTs to tokenize any real assets,” said Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange.
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