NFTs in DeFi

Since the inception of Non Fungible Tokens known as NFTs in 2014, NFTs have exploded in popularity reaching a global transaction high of $17 billion in 2021, up 21,350% from $82.5 million the previous year. 

Celebrities, companies and industries have capitalised on NFT technology and have found novel ways of refining their lure and utility. 

NFTs are unique tokens that reside on the blockchain that cannot be replicated or divided. These tokens can represent anything, such as gaming characters, real world concert tickets, artwork etc. By securely tokenizing assets on the blockchain as NFTs, buying, selling, and trading is more secure, efficient, streamlined and accessible to the masses. 

NFTs for example, are a great way for an artist to showcase their creativity and monetise their talent, with many artists already having made their careers selling their art as NFTs. Art however has its limitations in terms of market reach, as not everyone necessarily wants to own art. The next monstrous wave of NFT adoption is going to come in the form of NFTs that offer utility.

We’ve already seen a taster of this adoption through projects such as Degen Toonz, combining collectible art with exclusive rewards, Cryptokitties, an Ethereum based game where players collect, breed and sell virtual NFT cats, and Slotie, a gambling network, where NFT holders essentially become shareholders of the casinos profits. 

As blockchain advances and the metaverse expands, NFT utility will be integrated into our everyday interactions from gaming, working and socialising through to shopping and everything in between.

Utility NFTs come under the following classification. 

Community/Social NFTs - Can give holders access to DAOs, voting rights, exclusive deals & offers etc. 

‍Fantasy Sports NFTs - People can buy, sell and collect NFT cards and use these tradable cards to enter fantasy football tournaments to win prizes.

Gambling NFTs - Holders May be granted greater % on winnings, casino profit shares, exclusive games etc. 

In-game NFTs - Metaverse NFTs give players custom weapons, cloths, vehicles etc. that can enhance gameplay or be traded. 

A project only needs to assign some benefit to holding an NFT which suddenly gives it utility and appeal. 

The movie ‘Ready Player One’ already gives us a glimpse as to what the NFT future could look like. Within the movie, bespoke items within a gaming metaverse called the ‘Oasis’ can be bought, traded and utilised within the worlds. This essentially is already here with Axie Infinity, albeit in less of a grandeur way. 

Axie Infinity is an online game built on Ronin Network, an Ethereum side chain where participants purchase NFTs that represent digital pets known as Axies. These pets can be bred, battled, collected and traded in an expansive world with its own play-to-earn economy. Axie Infinity’s success, predominantly in the Philippines, led to its growth of 19,000% to $7.5 billion market cap in under 12 months in 2021.

In traditional games, digital assets can bought using FIAT currency, however if a game goes bust or the server fails etc. participants lose their assets. With NFTs facilitated by blockchain technology, participants are in full control of their assets and can trade or use them on other platforms with minimal risk of downtime failures. New players can purchase items they desire without having to play for hours to earn them, simply trading money for time, creating an in-play economy for the participants and the game developers who will take a percentage of the transactions cost. 

With Axie Infinitiy’s model, participants can only start playing once they have purchased three Axies. Players can evolve their unique axies through play, improving their abilities and making them rarer and thus more desirable. This increases their price on the open market and feeds the in- play economy. In 2020 a rare Axie sold for 120 ETH, with a transaction value of $130,000 at the time. 

The economy within games fluctuates just like crypto, however the success of Axie Infinity, showcases the demand for NFT technology. 

Many companies and projects have developed series of utility NFTs that are integrated into their DeFi models.

VyFi is aiming to provide a new approach to the profit sharing mechanism via their many services, including NFT staking, where participants can earn VyFi native tokens for locking their NFT for 100 days. Another unique, and first-of-its-kind, DeFi approach is the ability for holders of specific NFT’s to have exclusive benefits, such as early access to purchasing tokens from new projects. As VyFi put it, the first DeFi NFT launchpad. 

Minswap rewarded participants of their Liquidity Bootstrapping Event (LBE) who converted purrADA for MIN/ADA LP tokens, with exclusive NFTs. LP tokens could be staked with the NFT acting as a booster for Min farming rewards. The booster reward from holding the NFT was only applicable for the first 7 days of launch and randomly boosted participants earning from 1.1x to 2x. Although concluded, this demonstrates another novel way of how projects are experimenting with the unique ways NFTs can be used for community engagement and DeFi functionality.

AADA Finance have developed a transferable NFT-bond used in their DeFi borrowing and loaning platform in a bid to keep the protocol non-custodial. A borrower’s locked collateral is not stored in the protocol but the NFT-bond which is transferable and can be retrieved by anyone holding the bond in their wallets. To access the deposit locked within the bond, one has to repay the loan amount. This creates a more decentralized and fluid financial environment with the NFT- bond acting as a new form of decentralized security.

Genius X is an accelerator program launched by the team behind Genius Yield. They provide early-stage blockchain startups with all the expertise and tools required to become successful. As part of the full and embodied support offered, Genius X will facilitate a public token sale for the project via an Initial DEX Offering (IDO) through the Genius X Launchpad. Holders of unique Genius X NFTs will be granted boosted privileges in the form of increased tokens from startup projects, based on their NFT level. These NFTs can be earnt through Genius X’s stake pools where participants can delegate their ADA to receive unique NFTs that come in 3 tiers.

MELD has developed a series of utility NFTs, one being a Diamond Hand NFT, where holders will be able to benefit from early access and reduced fees on the FIAT side of banking, which could result in substantial savings. Another MELD NFT, called the Bank Manager, grants owners loan interest rate reductions by 0.3% and increased yield on variable staking of 0.1%.

MELD plans to have a presence within multiple metaverses where individuals may visit MELD headquarters and interact for actual real life financial services all the while utilizing their NFTs. This dynamic opens up a lucrative business model where projects can efficiently and securely monetise experiences and services in an infinite number of customisable ways.

Imagine playing a game such as GTA and visiting MELD headquarters in play, for a real life loan to buy that much desired lambo…….NFT! 

As we can see, DeFi projects are already trailblazing the utility of NFTs in all sorts of unique and wonderful ways. In a world where technology moves at an exponential pace, the future innovation and NFT integration on a global scale may come sooner than anyone realizes.     

A recent Elwood news article talks about the rising success of the blockchain industry, in particular, the talent flocking from Traditional Finance over to Decentralized Finance. The article describes how funds continue to flood the crypto sector, given the current economic uncertainty, with traditional financial players, including Goldman Sachs, investing in the sector heavily. 

“London-based digital assets hedge fund Nickel Capital held a survey of 200 institutional investors across seven counties managing a combined $329 billion in assets. The survey found that 84% of participants believed digital assets would soon become mainstream. Furthermore, of those surveyed, 81% set their sights on DeFi as an important disruptive technology for traditional finance.”

With more and more projects integrating NFTs into their models, once mainstream, the potential scope, reach and competitive environment will stratospherically launch NFT utility into every household around the world.   

“Away from the more established cryptocurrencies like BTC and ETH, NFTs continue to proliferate in the mainstream and could be poised to disrupt the way we conduct many areas of our lives including entertainment, leisure, business interactions, and mainstream commerce”.

From owning bespoke digital swords for noble quests to tangible concert tickets, the applications for NFTs that translate to quantifiable real world value are limitless. I believe in the next few years everyone will suddenly realize that NFTs have crept into our everyday lives without even having become aware!