NFT Backed Lending Mechanisms: The Future of DeFi
Crypto market capitalization surpassed USD 3 trillion last year; this was even less than USD 800B at the beginning of 2021.
DeFi might be standing at an all-time high, but what has been most surprising is the rise of NFTs (Non-fungible tokens) as the crypto economy’s mainstay, and one can’t claim to have foreseen these developments.
Peeking into the future is awfully difficult; however, the latest offerings hint at the growing demands for DeFi applications as NFTs are bought by more individuals. So this leads us to a question worthy of asking: are NFT-Backed Lending Mechanisms really the future of DeFi? Well, NFTs are undoubtedly evolving as the gateway into DeFi settings. And as new collectors get more engaged in the NFT market, new ways to leverage assets through DeFi tools will be emerging.
New NFTs are being created and collected every day, with new collections continually sprouting up. Even sports teams have begun coining their own NFTs to offer a whole new medium for their fans to back the squad. This roaring trade thriving over digital art promises to develop in line with the evolution of cryptocurrency.
NFTs can serve as immense contributions to the development of DeFi in the long run. The discussion that follows will help you better understand how NFT can help us get the most out of DeFi.
NFTs helping DeFi to unlock the value
NFTs offer a unique way to store value. Like any other asset, NFTs have their value tied to a specific asset. The estimate of NFT values differs profoundly on market & individual levels. And as it’s highly challenging to replicate NFTs, thereby signifying that two NFT’s can’t be the same.
DeFi or Decentralized finance, on the other side, is a financial system based on blockchain that opens the path to decentralized financial management through numerous in-built tools, namely cryptos, oracles, smart contracts and much more.
The definitions of DeFi & NFTs clearly exhibit the possibilities for discovering a connection between them — NFT offers the unique way to store value, while DeFi presents the infra for unlocking value.
Exploring the definitions can help get a promising idea of the foundation of NFT+DeFi. That said, the foremost thing we have to understand is that DeFi can work efficiently with numerous financial instruments. And NFTs would basically turn out as an added asset in DeFi’s portfolio!
· Value of NFTs
Art has always been the source of incredible wealth and its value has retained and improved over time. This has led to the wealth easily being made fungible & productive across different domains. NFT-backed lending mechanisms come somewhere in between, offering the chances to unlock the reserved value & further develop NFTs into profitable assets.
In the real sense, NFTs are more fungible as storage whose value is bound to strengthen over time.
· NFTs as Collateral value
Lending against collateral isn’t something new; the same goes for lending backed by NFTs in the crypto space. Fluid lending within economies can usher to exponential wealth. And this is where NFTs open the ‘next door’ of opportunities that could evolve into the future of DeFi.
The chance of establishing a value against NFTs in the open market and consequently accessing the crypto-capital will develop the wider spheres of DeFi. After all, when NFTs values are put into work, they can help their holders make fast-rising assets.
NFT-DeFi in the future
Most people view NFTs as the sole way for retail investors to get more engaged in DeFi.
We are moving towards the meaningful interaction of DeFi and NFTs that isn’t restricted to gameplay or any visual element, but the financial components themselves. DeFi historically had barriers caused by experience gaps, but bringing NFTs into it can offer user-centric entry points into eminent DeFi cases.
The rapidly evolving field of NFTs provides the scope of leverage with a fair share of risks — similar to traditional markets. But as NFTs are web-native assets, we can witness greater value tied to the internet property. After all, where there’s value, there are robust finance opportunities.
Summing it up
Since the blockchain-certified artworks hit the headlines, the desire for crypto has continually sprouted. NFTs are undoubtedly evolving as the gateway into DeFi settings. And as new collectors get more engaged in the NFT market, new ways to leverage assets through DeFi tools will be emerging.
This trade built around digital art is evolving with the growth of cryptocurrencies. New NFTs are constantly being created & collected. Art has been used conventionally as collateral in the real world for as long as we can remember. And the capability of NFTs to allocate value to almost anything makes the transition of NFTs into DeFi’s domain seems a reasonable step towards the future.
Users can establish their NFTs’ values based on the open market, thus having greater access to crypto-capital, which can be redistributed through the wider spheres of the DeFi market. This indeed can be the promising future of DeFi!
NFT- backed lending mechanisms are gaining depth and growth of DeFi as NFT-DeFi would surely open broader horizons of innovation. Overall, the goal of NFT- DeFi is to enhance NFTs liquidity & help users access much capital to spend on DeFi mechanisms & further blockchain services.
Well, this is our take on the topic. If you feel like learning more about DeFi, NFTs and crypto in general, don’t hesitate to check out more articles on our blog.
