What can the integration between DeFi and NFTs mean for the global monetary landscape

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Glob­al finan­cial sys­tems and insti­tu­tions seem to be on the search for an asset class that would ensure liq­uid­i­ty with­out the inter­ven­tion of cen­tral author­i­ties, and non-fun­gi­ble token (NFT)-based loans is believed to be the answer. From a mon­e­tary expert’s per­spec­tive, the inte­gra­tion between decen­tralised finance (DeFi) and NFTs can enable investors to use their NFTs as col­lat­er­al in return for cryp­tocur­ren­cies or fiat currency.

Accord­ing to Nansen, a cryp­tocur­ren­cy and blockchain ana­lyt­ics plat­form, high­est NFT-based trad­ing hap­pened around August 29, 2021, which wit­nessed sales for 132,000 ETH, worth $422 mil­lion. The plat­form also high­light­ed on the devel­op­ments around smart mon­ey relat­ed to this sec­tion, with the top 10 NFT traders record­ing over $185 mil­lion in prof­its. “I believe NFTs can be put up as secu­ri­ty for a loan. The NFT is locked into a smart con­tract, once it has been agreed upon for a spe­cif­ic peri­od of time or until the bor­rowed amount (plus inter­est) is repaid. In the event that the bor­row­er is unable to make the loan pay­ment on time, the NFT is

trans­mit­ted to the lender’s wal­let as secu­ri­ty for the out­stand­ing bal­ance,” Abhay Aggar­w­al, founder and CEO, Colex­ion, an NFT mar­ket­place, told FE Blockchain.

Insights from mar­ket-based research has shown that NFT-based loans allow users to mort­gage their NFTs for liq­uid­i­ty, with­out hav­ing the need to sell them per­ma­nent­ly. As report­ed by Bybit Lean, a cryp­tocur­ren­cy knowl­edge-based plat­form, frac­tion­alised own­er­ship of NFTs can pro­vide ben­e­fits such as enhance­ment of the asset class’ liq­uid­i­ty, help investors quick­ly assess the mar­ket val­ue of an asset, and can be an easy form of monetisation.

“This col­li­sion of DeFi and NFTs has opened up pos­si­bil­i­ties for NFT hold­ers by mak­ing it a more of liq­uid asset. Rent­ing affords NFT hold­ers the oppor­tu­ni­ty to earn pas­sive income from their NFT col­lec­tions on their own terms, with­out hav­ing to con­cern them­selves with frac­tion­al­i­sa­tion. This enables more liq­uid­i­ty to enter the mar­ket, since an expen­sive NFT can be divid­ed into shares of its worth using fun­gi­ble tokens,” Aman­jot Mal­ho­tra, coun­try head – India, Bitay, a cryp­tocur­ren­cy exchange, stated.

Report­ed­ly, com­pa­nies such as Arcade, NFT­fi, Nexo, among oth­ers, are some of the plat­forms which have incul­cat­ed NFT-based loans to their ecosys­tem. Oth­er com­pa­nies such as Unic.ly and NFTX.io are mar­ket­places which allow users to deposit their NFTs into a vault for mint­ing ERC-20 tokens. In Decem­ber, 2021, Arcade con­clud­ed a $15 mil­lion Series A fund­ing round to bring secured loans that con­nect the NFTs with DeFi. It is believed that sec­tors such as art, lux­u­ry, real estate, enter­tain­ment, among oth­ers, are also expect­ed to ben­e­fit from NFT and DeFi’s correlation.

More­over, mar­ket ana­lysts believe that banks aim to use dig­i­tal col­lectibles such as NFTs to back busi­ness­es to reg­is­ter and trans­fer dig­i­tal assets on the blockchain, on account of data safe­ty. As report­ed by bitsCrunch, a glob­al data ana­lyt­ics com­pa­ny, users could post NFTs as col­lat­er­al and cred­it providers could bid on the amount of their pref­er­ence. Fur­ther, the mar­ket­place could also per­mit users to select among DAI and ETH as their pay­ment choice.

“Instead of buy­ing dig­i­tal pho­tos, videos and game assets, we may be buy­ing real estate and stocks. I believe this will mean a meta ver­sion in which every­thing will turn into an NFT token that can be bought with cryp­tocur­ren­cy. In the near future, com­pa­nies will use NFTs to tok­enize any real assets,” Sathvik Vish­wanath, co-founder and CEO, Uno­coin, a cryp­tocur­ren­cy exchange, mentioned.

Also Read: Bit­get launch­es Bit­Ga­tor – Indi­an ambas­sador pro­gram for cryp­tocur­ren­cy enthusiasts

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