Seriously, there are too many ways to play with the financialization of NFT

The DeFi protocol is the fuel for NFT, exploring what the future of NFT will look like.

Seriously, there are too many ways to play with the financialization of NFT

NFT started out as a niche use case for collecting digital cats within a fringe community of cryptocurrency lovers when it emerged in roughly early 2018. After three years of development, we’ve seen the technology take hold in art, design, game development, music, and writing.

That’s because NFT, like Bitcoin and DeFi, is a financial, sociological and political movement. They both make ownership and provenance of digital content “legal and lawful.” Allowing people in every corner of the world to buy the content they need from the creator through rapid value transfer. This movement is driven by individuals to industries, or those who cannot profit directly from their work.

We are still a ways away from this technology achieving mass landing and fully realizing its potential. However the first phase of landing will include the tokenization of media assets for economic purposes, both on and off-chain. The second phase will include the financialization of assets using the DeFi protocol, increasing their value proposition and allowing for the emergence of new use cases.

In this paper, I will discuss why the DeFi protocol is a catalyst for NFTs, highlight a few financial use cases that will help facilitate NFTs, and explore what the future of NFTs will look like.

DeFi is the fuel for NFTs
The financialization of NFTs through the DeFi protocol addresses many of the issues facing NFTs today, specifically

Because NFTs are by definition unique, buyers are often required to have expertise in a particular asset so that they can make rigorous buy and sell decisions. In addition, the scarcity of unique assets can quickly push prices up beyond what retail investors can afford. These two factors raise the bar for novices to enter the NFT market and hinder the accumulation of value in NFT itself. Because part of the value of NFT comes from its potential community, this can limit buyers and make it difficult for NFT to penetrate the Internet as a whole. the DeFi protocol can reduce the financial and knowledge requirements for users to participate in the NFT market, opening the door to a new wave of retail investors.

A liquid market with specific NFT buyers and sellers will facilitate the emergence of higher price levels as it increases the speed at which NFT can be traded on the secondary market. The more transactions there are, the better the perception of the fair market value of NFT. This makes it easier for sellers to profit from their work, and makes it easier for less experienced buyers to enter new markets and also to withdraw their investments.

Ownership and provenance are important attributes of NFT, and they are uniquely supported by the license-free crypto network, but their value proposition has yet to fully resonate with retail investors. Leveraging the rich greater utility of the DeFi protocol, such as access to cash flow, content and experiences, will make it more attractive to the mainstream audience that owns NFT.

The DeFi and NFT partnership
There are plenty of great use cases for DeFi and NFT synergy.

Banks have allowed the use of traditional artwork as collateral for lending since 1980, and Deloitte & Touche estimates the global value of artwork secured loans at $21 to $24 billion in 2019.

By passing non-recourse loans for digital art, collectibles, virtual land and other content, one can apply this to NFT. Rocket Lending experimented with this in the early 2020s, while the NFTfi lending platform is currently building a bilateral marketplace on ethereum. However, this is still in its early stages, and NFTfi has about $22.5 million in loans to date.

Receiving NFT as collateral in a loan agreement can increase the utility of NFT to the owner while increasing the economics of the agreement, which is a win-win.

Pricing is an important and relevant component, and in the absence of secondary market transactions, especially during liquidation, an appraisal of the value of the NFT may be required, a practice widely used in the traditional art and collectibles market, which can be done through a licensed appraiser or platform.

ICOs are the first killer application on Ether, as the platform is ideal for global capital formation and distribution. This use case also applies to NFT. users from all over the world can invest in creative works at different stages, which could lead to a renaissance of digital art and enable new business models.

For example, a writer named Emily-Segal raised about $50,000 for her next novel, worth 25 ETH, and gave away 70% of the work in the form of NOVEL tokens, which represent partial ownership of NFT. If NFT is sold on the secondary market at a higher price, the holders of the 104 NOVEL tokens are entitled to a pro-rata share of the profits and other benefits.

Seriously, there are too many ways to play with the financialization of NFT

Owning written content can also provide a new business model for publishers. For example, the New York Times column NFT recently sold for $560,000, which is likely much more than the company would have earned on that ad.

In the traditional business world, a company made up of members usually requires its members to contribute money in order to join. Distributed Autonomous Organizations DAOs are a native crypto approach to this and have become the standard way to manage the DeFi protocol, DAOs will be even more important to NFT because the assets and communities that form around them will increase by an order of magnitude.

We are already seeing the appeal of these “collaborative collection organizations” as they allow groups to invest in any NFT that is prohibitive to individuals, as was attempted by DAOSaka in late 2019 and is currently being done by FlamingDAO, which pools funds from individuals. Cooperative collecting organizations test themselves and grow organically. PleasrDAO, for example, initially pooled funds to buy specific NFTs, then expanded their scope and later purchased the NFT “Stay Free” from Snowden for $5.5 million. In both cases, DAO outbid a single wealthy buyer, thus winning the auction.

Economic Attribution
The public record of sources makes possible use cases that were previously impossible or difficult to execute, such as royalties on art and other assets sold on the secondary market.

Parible, SuperRare, and Zora implement royalties with varying degrees of functionality and interoperability, and Mirror does so at the application level with a feature called “splits,” which allows authors to assign a portion of the economic value of their work to others when it is published. others.

Royalties can be applied to content other than digital art and music. For example, Charli D’Amelio became an overnight sensation with his “Rebel” dance on Jitterbug. NFT could solve this problem by offering the ability to tokenize such content and provide financial help to the creator when it is monetized. In the future, athletes, dancers, photographers and other creators will receive credibility and compensation for their work through NFT’s direct minting of their content.

Economic attribution can also be programmed to multiple specific NFT owners. planck recently experimented with this concept by publishing the results of a scientific study as an NFT and implementing a feature called “SplitStream” that allows NFTs to redirect some of their future revenue to other NFTs.

Seriously, there are too many ways to play with the financialization of NFT

In academia, this is intended to provide incentives and funding for academic research by creating a social graph of citations and perpetuating these to NFT owners.

The ability to trade with one NFT against another is important because improving liquidity and prices by opening up the range of potential trading pairs is difficult to achieve due to the illiquid design of NFTs.

The 0x protocol addressed this issue for the first time in 2019 using ZEIP-28, which enables a buyer to use another NFT as an expense token to pay for an uplinked NFT, thus enabling trading between NFTs with an order book-based protocol, but this still requires the buyer to specify the NFT to be purchased. 0x protocol later implemented property-based orders, which enables a buyer to create an offer to purchase any asset that has a specific set of properties. In practice, this liquidity is based on certain properties, but remains fragmented for a given type of NFT.

Other solutions try to facilitate transactions by using intermediate alternative ERC20 tokens. nft20 implements this concept by creating ERC20 tokens, each representing a different type of NFT, and pooling these tokens according to their type of mining. These NFT types can then be traded between multiple mining pools via CFMM routing, using a common meter.

Seriously, there are too many ways to play with the financialization of NFT

This solution is particularly suitable for collections with small amounts of valuable assets and long-tail of low-value assets with widely known floor prices.

In addition, due to the atomic nature of Ether transactions and the combinability of the DeFi protocol, developers can “chain” multiple intermediate tokens and liquidity pools in a single transaction, thus enabling transactions across various NFTs.

Fractional Ownership
Fractional ownership is an effective way to popularize assets and has historically been used for high-value assets, such as vacation properties; Otis does this by purchasing assets, storing them in a vault, and issuing shares representing ownership of those assets.

Seriously, there are too many ways to play with the financialization of NFT

NIFTEX* is also doing this for NFTs. It allows the owner of a particular NFT to deposit that NFT in a smart contract and issue “shards” (ERC -20) representing that asset. The underlying NFTs can be redeemed by acquiring all the “shards” or through an acquisition clause.

One can also split ownership of a range of assets, which Metakovan has done with the B.20 token, which contains 28 assets, including Beeple’s cryptoart and Cryptovoxels, Decentraland and digital lands in Somnium Space.

Index Funds
Index-based investing in traditional financial markets has grown in popularity over the past decade because it provides a transparent, low-cost way to diversify across a variety of markets.

Similarly, NFT-focused index funds allow investors to invest in specific categories of NFTs without requiring them to evaluate specific NFTs.

Seriously, there are too many ways to play with the financialization of NFT

NIFTEX* does this by creating index funds for various collections, such as Cryptopunks, each backed 1:1 by a base NFT; for example, the PUNK-ZOMBIE ERC20 can redeem a zombie crypto-punk from the mining pool at any time.

By attracting additional demand and trading activity from more users, NFT-focused index funds can also improve the liquidity and price upside of underlying NFTs.

Sometimes people want to rent rather than buy, a fact the art world has embraced for decades. For example, the Museum of Modern Art (MOMA) has been loaning out art since 1957. Artists and collectors get an additional source of income, and renters can enjoy the artwork at a lower price.

Seriously, there are too many ways to play with the financialization of NFT

This model is equally applicable to non-reality domains such as art and digital. Today, ReNFT is trying to achieve this with a peer-to-peer marketplace for NFTs. As with most DeFi protocols in cryptocurrencies, this is currently an overly secured solution. Borrowers can rent NFT by depositing collateral equal to the market value of the NFT loan and additional rent. i.e., the EIP-2615 proposal improves on the protocol level by itself supporting the leasing functionality within the ERC-2615 token and no longer requiring a margin.

Yield Guild Games uses a slightly different model in its gaming environment, lending Axies to new players in exchange for a percentage of SLP tokens that are rewarded as players play the game. In effect, players rent an Axis in exchange for a portion of their future earnings.

Synthetic Assets
Synthetic assets are a financial instrument that mimics other instruments. While most financing channels today are not financial instruments in the traditional sense, the concept can still be used to improve the liquidity and market access of these financing channels.

One of the problems with casting NFTs on multiple blockchains is that it becomes more difficult to purchase assets. In addition, there may be a group of buyers who simply want to drive the price of NFT rather than actually own it. For these users, there is an opportunity to understand the price of NFT. For example, we can use the price oracle prophecy machine to provide Ether users with predicted prices for NBA Topshot assets on Flow.

Having said that, some NFTs are indeed financial instruments, such as the shares of Uniswap V3 LP. From this perspective, multiple limited partner shares can be combined to replicate the return structure of various derivatives.

The future of NFTs
Over time, we will see more unique, complex and interconnected cryptocurrency media that will leverage multiple DeFi protocols to enable value propositions and use cases that would not be possible in the traditional world. The design patterns here enable, but are not limited to:

-Bundle²:Index Coop* could provide retail investors with an easy way to reach various NFTXs by creating equally weighted indices from NFTX’s AXIS, MASK and PUNK index funds (since they are already ERC -20).

-Subdivision + Bundle:Subdivide AXIS, Catalog record, Cryptopunk and Sandbox* lands, each into 100 ERC-20 tokens, and deposit 25 tokens of each asset into Charge Particles to mint NFTs that represent the diversity of the subdivided assets.

-AlchemyNFT is using AutographNFT to implement the latter by providing the ability to “sign” existing NFTs using digital signatures. Punkbodies are created by allowing users to combine their Wrapped CryptoPunk (an ERC-721) with a PunkBody (also an ERC-721) to create a Punkster that they can download or cast. NFTs, users can burn composed NFTs to unlock the original NFTs. these combined NFTs inherit their original source and utilities, while providing additional features or utilities.

Seriously, there are too many ways to play with the financialization of NFT

Over the next few years, we will see a series of experiments around these concepts and we will see how developers, creators and the community will work together to bring these concepts to life.

The future looks bright with this collaboration between DeFi and NFT!

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-05-05 06:15
Next 2021-05-05 07:36

Related articles