Since we analyzed the battle between DeFi, CeFi and traditional banking, we have seen the market for decentralized finance continue to grow, to the point that many are trying to figure out what will happen in the near future. And it is precisely here when the non-fungible or NFT tokens, and what is your role regarding DeFi.
The first thing to keep in mind is that, by definition, a fungible asset is a type of asset that is interchangeable with other assets of the same type. Hence, currency is often a fungible asset. If we ask for a loan of 100 dollars and they give us a bill of that denomination, we can return it with 10 bills of 10 dollars or 5 bills of 20 dollars. The final value, of course, does not change.
However, non-fungible assets are not mutually substitutable as are fungible assets. Examples abound, such as houses, cars and many others.
The era of NFTs
In this context, an NFT is the tokenized version of a non-fungible asset. Instead of a fiat currency such as dollars, euros, or British pounds, these tokens can function as the representation of a work of art, real estate, or collectibles. Even certain games known as Decentraland and CryptoKitties frequently take advantage of these tokens.
There are some characteristics that make a token non-fungible. For starters, NFT’s ownership is unique. It cannot even be substituted for another matching NFT. These tokens are not separable. Each NFT has defined ownership and privileges.
Relationship between NFT and DeFi
In any case, NFTs are being touted as the next big thing in the world of decentralized finance. In the first week of September, NFTs posted sales of $ 1 million. In the first week of the following month, sales rose to $ 2 million. An explosion.
According to experts, it is the DeFi paradigm that has helped make NFTs so important. In this sense, we could say that they feed back. This, considering that NFTs help to expand the collateral market in DeFi loans because, although many do not know it, a DeFi loan and loan platform requires collateral. For example, a work of art or real estate can be tokenized as NFT and put as collateral
But the use of NFT goes beyond the realm of warranties. They also mean the ability to represent more complex financial products such as insurance, surety, etc.
And this, without forgetting the NFTs related to the issuance of governance tokens. Many NFT platforms and markets have started issuing and distributing their governance tokens
Other minor uses of NFTs
As a digital collectible
We have cited it before. We could say that this started with the CryptoKitties game in 2017. For those who do not know, this game mimics an economic model of asset appreciation. Non-fungible tokens are sold as cryptoKitties, then raised to transform into Non-fungible Tokens sold as cryptoKitties and sold back to you, doing business.
As verification of personal information
NFTs also aid in digital identity verification processes. Considering that these tokens are not interchangeable, and cannot be substituted for others, they are a good proof of our personal identity. Same as driver’s license, academic credentials, etc.
As a software license
All software uses a personal key as a license. This key is a long string of characters, alphabets, and numbers. To prevent misuse of those items, NFTs are used as keys, as they can be stored in our crypto wallet and used when needed.
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