Written by Oluwatojumi Oludayo
Non-Fungible-Token(NFT) is also another project that has taken the market by surprise during the pandemic. It started around the year 2014 and has constantly propelled into one of the exquisite projects currently.
According to reports by NonFungible.com, the NFT market tripled in 2020 to a little more than $250 million, and the number of active wallets to buy and trade them nearly doubled.
NFTs are built on the blockchain just like every other cryptocurrency like Bitcoin and Ethereum but it doesn’t mean they are alike simply because NFT is a non-fungible token meaning that only one is minted and there’s no surplus, NFTs also vary in value and the worth depends on the ownership, unlike crypto coins which makes it very unique and distinct.
They are cryptographic tokens that represent digitally scarce goods which include: art pieces, painting, music, and dynamic artistic exhibitions. As the name non-fungible implies it means that they have individual properties and values which means they are Distinguishable and most importantly there is only one original copy that can be made no more no less.
NFTs have four basic properties:
- They have ownership guarantees
- They cannot be counterfeited
- They cannot be replicated
- They cannot be inflated
Functions of NFTs in DEFI
Deciphering issue of collateralization
The dynamic compatibility of NFT and DEFI projects is one to watch out for as 75% of DEFI’s lending protocols are collateralized. In P2P transactions and loans therefore borrowers can use their NFT tokens as collaterals and allowing lenders to select their preferred NFT of their choice before initializing a loan so when the borrower fails to keep his end of the deal and pay his loan with interest within the stipulated time then the NFT used as collateral is automatically transferred to the lender as compensation.
The issue of collateralization can be solved due to the combined effort of NFT and DeFi by using NFT collectibles as collateral against DeFi lending. Furthermore, NFT helps in resolving liquidity issues in DeFi by applying tokenization of those NFTs. The tokenization will quickly prepare an illiquid asset. For example, a piece of art that is easily tradable.
Unraveling issue of curve model
The Curve Model was launched in 2020 and its sole purpose was to create an AMM exchange with low fees for traders and simultaneously empowering efficient fiat savings to account for liquidity providers.
The curve is a popular automated market maker (AMM) platform that offers a highly efficient way to exchange tokens while maintaining low fees and low slippage by only accommodating liquidity pools made up of similarly behaving assets.
This computerized strategy lowers fees for the liquidity providers that supply the pools with their tokens and the curve incentivizes their participation by merging with external DeFi protocols and distributing rewards in the form of CRV tokens and interest.
The implication of this is that the curve model was created to distribute liquidity all across the entire curve, meaning that a large build-up of liquidity was not generating enough payments for providers.
The integration of NFT in DeFi space will help proffer solutions to arising issues in the curve model by inaugurating a facility to help liquidity providers make their preferred custom prize sizes and also in equity evaluation and risk reduction and management.
NFT Ownership and DeFi
NFTs as earlier described have distinct and distinguishable properties instilled in them by the originators and creators which makes them unique hence, these creators have a specific right and degree of ownership over their crafts and handwork as there are no replicas of the original version or copy.
On DeFi platforms, NFTs give room for producers and creators to get a fair share of earnings and yield made on their creation thus ameliorating ownership rights and revenues for them. This attribute functions as an effective form of collateral and can unlock the gates to under-collateralized loans.
Pertaining to the DeFi space alone, it is too much a task to accomplish as it is not possible but with the fusion of NFT in the Defi space, their collaboration will be one of a kind as it will be of great advantage and benefits and this aim can be achieved.
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