The use of real-world assets, as value within Decentralized Finance (DeFi) through the form of Non-Fungible Tokens (NFT’s) is innovative. Today, we explore how exactly NFT’s will supercharge the DeFi world, to an unimaginable potential.
What are NFT’s?
NFT’s are unique, digital tokens, which are not fungible, i.e. each NFT is not the same as any other. This is different to the normal tokens commonly used as collateral in DeFi.
What is an example of an NFT?
The most common examples are collectibles like art. It is rare, one of a kind, and presents ownership. But, NFT’s can tokenize far more than this. NFT’s can represent a digital ownership of any valuable, rare asset such as -
- Real estate
- Collectibles and Art
- Gaming items
Why are NFT’s a big deal for DeFi?
DeFi, is like building new blocks of money. Rather than simply holding your Bitcoin, for example, you can use it to receive rewards from liquidity, lending etc.
Similarly, there is an enormous market of real-world, physical assets which could be used as value in DeFi. Imagine, instead of selling your real-estate, if you could use it as collateral to borrow cryptocurrency, tapping into the rich-vein of liquidity, enabled through the open-world of finance that is DeFi.
While we’re still early in the infancy stage yet, the figures are illustrating the available value. There is an incredible, untapped market of real-world assets that are yet to see the unprecedented-benefits of DeFi.
What are the issues with NFT’s?
There are a number of barriers still, but these can be overcome, if you continue reading.
Currently, the issue with rare, unique items, are that there’s not enough accurate data on it’s price. Many are highly illiquid, and the rise of marketplaces could help this.
When you lend Bitcoin for example, a price-oracle fetches accurate data on it’s value. This becomes harder to do with illiquid assets that are unique, and with few buyers.
In 2017, the NFT ‘Crypto Kitties’ were launched as rare collectibles on Ethereum’s ERC-721 standard. The most expensive NFT was called Dragon, which was sold for $170,000. The demand for unique digital/physical assets is already there, now it’s a matter of how NFT’s can start to be used within DeFi.
How will NFT’s join DeFi?
There are many innovative approaches, and over the next year many of these will come to life by merging with DeFi.
Datify has a different approach, by allowing DAFI token users to mint their own, rare NFT.
This DAFI NFT is unique to you. Rarer NFT’s are minted by users who have proven more trust in the protocol over time. In other words, by being a consistent, supportive member of the economy, your NFT may have greater perceived value.
What will DAFI NFT’s be used for?
They are a rare collectible — a tokenized form of trust accrued in Datify. They can be used as collateral to lend, borrow and trade. As acceptance of NFT’s grow through 2021, the ability to use DAFI NFT’s throughout a range of DeFi features will be made possible.
The purpose is logical, if someone is incentivized to not act malicious in the protocol, they can mint an NFT based on the trust they have proven. This NFT can then be applied, in theory, as value to other DeFi protocol’s.
New & existing DeFi protocols can also allow for the NFT’s DAFI user’s have minted, to be used as a value-of-trust. You can deposit your NFT along with your Bitcoin, for example, to borrow with a lower collateralization, and better rates.
Datify aims to use NFT’s to tokenize trust in a decentralized world. Which could flawlessly unify many external DeFi protocols too.
As other protocol’s adopt xDFY to replace their current inflation mechanism (for staking, liquidity, or rewards) they also can use xDFY to create unique NFT’s within other platforms.
For example, a new DEX which issues out dDFY can enable this to be burned for a Proof of Trust NFT within their platform.
This is only the first phase. The Datify protocol will not only enable a unique NFT to be used as value within DeFi features, but to also be minted by each individual person. Following this, the ability to utilise other types of NFT’s — e.g. gaming items, can be created in the future.