Financial NFTs — How It Works
Despite all the hype around NFT, non-fungible tokens are still associated with digital art for most people. In fact, the scope of NFT is much wider — it can be used to tokenize real objects of art, real estate, transport. Another promising area of using NFT is finance: bonds, insurance, and indeed entire businesses can be tokenized. Ultimately, NFT is a blockchain-based certification system for unique objects, and the financial world is no exception. At the same time, in the Defi-infrastructure, financial NFTs create many interesting opportunities, which we will discuss in this article.
NFT as Financial Rights Certification
Because the DeFi industry seeks to get rid of intermediaries, they cannot rely on legal authorities to prove ownership of certain assets or rights to receive certain financial privileges, such as a percentage of profits, resale, or someone’s debt.
NFTs can be tokenized financial rights — for example, you loaned 10 ETH to John, which he undertakes to give within a year, in return for which you receive an NFT, which allows you to automatically write off interest on the loan from John using a smart contract. NFT here will symbolize your unique right to charge interest on loans from John, while you do not need to resort to intermediaries in the form of courts or various financial institutions to collect this interest from John.
A more complex example is staking pools. Let’s say you added several tokens to the staking pool for a certain period and received an NFT as access to the next pool — after joining a new pool, this NFT will be destroyed.
Thus, the use of NFT as a means of ensuring certain financial rights allows you to build a trustless financial infrastructure, where you need no to rely on John, the courts or banks. A whole galaxy of trustless protocols has emerged that can be used to monetize financial NFT Compound, JustLiquidity, Yearn, etc.
However, many NFTs are reluctant to position themselves as securities (owning real objects) because this will immediately draw undue attention from various regulatory bodies that have specific requirements for trading securities and traditional assets. In any case, each option for tokenizing a specific category of an object is unique.
Scope of application
One of the most popular NFT applications in the financial arena right now is staking or decentralized lending. For example, many platforms allow NFT holders to borrow common fungible assets, be it native tokens, popular cryptocurrencies like ETH, or even stablecoins, using their NFTs as collateral. Barter Smartplace also plans to add this feature in the future. Giving NFTs on bail can be a good alternative when you urgently need funds but don’t want to sell NFTs.
In the future, NFTs will be more widely used and will go beyond the DeFI sphere — traditional types of business will also be tokenized. Not every platform will find the courage to trade this kind of assets due to potential legal difficulties, but we at Barter Smartplace are going to fill this niche. Such trading requires stricter identity verification in order to increase trust in transactions, but this is not impossible.
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