Non Fungible Tokens, the next big thing in the DeFi Ecosystem?
Emmanuel Chibuzor Precious
One of the sectors that has been tipped to drive more DeFi adoption and increase its use cases in the future is“Non Fungible Tokens” (NFT)
Throughout 2020, DeFi became the hottest topic in the crypto ecosystem and is undoubtedly one of elements that are instrumental to the recent bull run that has seen bitcoin soar to a new all time high (ATH). With the increased adoption of DeFi and it’s potentials to finding relevance in different aspects of human endeavours, this new trend in crypto has paved the way for other sectors in the space.
One of the sectors that may drive even more DeFi adoption is “Non Fungible Tokens” (NFTs). Non Fungible Tokens and other associated projects saw a reasonable rise in 2020. NFT data resource, NonFungible.com reported that NFT sales came close to $1 million in the first week of September 2020.
One of the attributes that may help NFT projects gain more traction is the incorporation of platform governance tokens which was one of the driving forces for DeFi during its early stages.
What are Non Fungible Tokens?
Non Fungible Tokens (NFTs) are cryptographic tokens that are used to create digital scarcities and to verify ownership.
As the name implies, Non Fungible Tokens are not interchangeable. They are built on blockchain technology just like every other crypto but are non fungible (non interchangeable) unlike other cryptocurrencies built on the blockchain technology.
Non Fungible tokens have unique attributes that distinguish them from each other — unlike other cryptocurrencies that have a large number of identical coins/tokens. Non Fungible tokens can represent digital artwork, collectibles, real world assets, in-game items, or something like an event ticket, etc.
How NFTs Work
Non Fungible tokens represent digital assets that cannot be copied or broken into smaller pieces. On the surface, they work like every other crypto asset in the sense that they are transferrable, have value and are built on top of blockchain technology. However, NFTs cannot be divided into fractions like bitcoin which can be broken down into smaller units called satoshi.
NFT platforms such as CryptoKitties and Decentraland built their NFTs on the Ethereum standard known as ERC-721. Although, other smart contract enabled blockchains such as Binance Smart Chain (BSC), NEO, EOS, and TRON also offer their own NFT standards which support creation of NFTs on top of each blockchain. Recently, another improved standard known as ERC-1155 was launched, which enables a single contract to contain both fungible and non-fungible tokens.
Unique Attributes of NFTs
Non Fungible tokens have some unique attributes that distinguish them from other crypto assets.
NFTs cannot be divided into smaller units but can only be bought, sold and used as one piece. A perfect correlation to NFTs is an event ticket which cannot be purchased partly say like 40% of it but must be bought in full; because only one person can actually be at the event.
Scarcity is an essential attribute that draws attention to NFTs. In as much as developers have the freedom to generate an infinite supply of these assets, it is equally within their power to limit the number of rare, desirable items in existence. Those rare items are then provably rare, and can be seen on the blockchain.
NFTs are usually designed in a way that makes them unique in creative ways too. That’s the main reason why NFTs are not interchangeable. Deep inside it’s metadata each NFT contsins permanent, unalterable record that describes what such NFT represents. This is in the similitude of a certificate of authenticity.
Potentials of NFTs in the DeFi Ecosystem
The marriage between NFTs and DeFi is an important collaboration that can be instrumental to more DeFi adoption and adoption of cryptocurrencies in general. tokenization has the potential of making things more interesting in the DeFi ecosystem. There are several areas NFTs thrive in DeFi.
CryptoKitties is one of many platforms that used NFTs to create an entirely new breed of collectibles. Recent platforms, like sorare.com, use NFTs to create tokenized versions of favorite celebrities or sports stars. The emergence of NFTs compells traditional collectors’ items like baseball cards, coins and stamps to be upgraded in order to fit in into the 21st century’s trend.
The incorporation of NFTs and DeFi in the gaming industry makes gaming profitable alongside entertaining experiences. Users are able to create rare items, and monetize their efforts.
Decentraland is a perfect example of a gaming platform that incorporates NFTs and DeFi into its platform. This gaming platform is a decentralized virtual reality platform that is built on Ethereum network. Decentraland offers users the chance to build, explore, play game and earn some cash.
NFTs can be used to digitalize our unique attributes such as appearances, academic qualifications, medical history and other unique traits. Digitalization of these personal and unique attributes can offer us a better and greater control over our data.
It is fair to say, that this use case of NFTs is still in its early stage, but in the future, many real world assets like property will be tokenized with NFTs serving as certificate of authenticity to prove who is the true owner.
One of the major challenges that bedevils artists is protecting their copyright. This makes it difficult for talentented artists and other creators to make a living. NFTs can solve this issue. Tokenized arts or other creations can be bought and proudly showcased in a virtual space, with blockchain offering proof of ownership. This ensures that creators of these creations get a bigger cut of the proceeds including a portion of the residual profit from future sales.
Popular NFTs on Binance Smart Chain
With its cheapest transaction fees and scalability, Binance Smart Chain has proven to be a great new platform for NFT projects. So far, these three NFT projects are pioneering NFTs on Binance Smart Chain.
The pancakeswap NFTs on Binance Smart Chain are used to incentivize users of the platform. During it’s maiden distribution, 600 users of pancakeswap who applied for the NFT incentive were chosen at random to claim one NFT from the platform. Lucky winners of the NFTs could keep their collectibles, or trade the NFTs for a CAKE value. Any NFT not traded can also be stored in the user’s wallet and traded on platforms like Treasureland.
Treasureland NFT market place
Treasureland market place is a project from Dego.finance which offers an open and user friendly NFT ecosystem on Binance Smart Chain where individuals can issue NFTs as well as auction and trade them.
Alpaca City is an entertainment platform that is working on a gaming ecosystem that will maximise the potentials of NFTs and yield farming. Alpaca City is built on Binance Smart Chain but has also has an Ethereum version.
As NFTs continue to find applications in various DeFi sectors, we look forward to the time NFTs will serve as collateral for loans in DeFi platforms. How great it will be when a piece of virtual land, house or artwork serves as a collateral for securing a loan from a DeFi platform.