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How are NFTs used in DeFi?

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Most NFT enthusiasts are aware of the financial benefits that earn-to-play games bring The marriage of Defy and NFT results in some of these benefits, such as collecting the game’s native tokens to unlock new NFT assets or staking NFT to earn interest.

However, there are many other ways that DeFi helps NFTs. In this article, we explain the lesser known three.

Nested NFT

Simply put, these are NFTs that are capable of owning other assets A nested NFT can contain both fungible tokens (ERC-20) and non-fungible tokens (ERC-721). As a result, we can think of them as a basket of different blockchain assets and tokens.

This flexibility enables new financial uses. you can For exampleCreate, manage and monetize a crypto portfolio using a single NFT

charged particles, Industry leader in the domain, builds on the nested NFT concept and allows the creation of NFTs with novel financial features. Artists and musicians can release content slowly thanks to time-lock functionality and design collaborative NFT projects that split revenue between wallets, to mention a few applications.

Another well-known protocol that uses nested NFTs is Nested It allows NFT owners to build portfolios and adds a social element to the mix. Users can copy each other’s portfolios to track the same investment performance. The protocol shares royalties with owners every time their portfolio is copied.

Loan collateral

Decentralized lending is a huge area in crypto circles. Market leaders like Aave and Compound offer loans in exchange for depositing cryptocurrency as collateral. Although not common, some DeFi protocols accept NFTs as collateral.

An example of a stater. On this peer-to-peer open-source lending platform, you can create a borrowing package from NFTs in your crypto wallet. It is possible to use a single NFT as collateral. However, if you use multiple assets, you can increase the total value of the collateral, increasing your chances of getting a loan in ETH. Lenders choose from these borrowing packages to provide liquidity for loans. If the borrower does not pay the entire collateral, the lender can claim ownership of it. Another platform that implements a similar concept is NFTfi. The platform distributes NFT-backed loans in WETH and DAI currencies.

An exciting incident related to NFT collateral occurred on NFT credit platform MetaStreet, where a borrower borrowed $8 million by lending 101 Cryptopunks NFTs.

Fractal NFT Marketplace

Combining DeFi concepts with NFT strengthens the decentralization of NFT marketplaces. Fractal NFTs play a central role in achieving this as they improve the buying and bidding mechanics.

A fractal NFT is formed by dividing a single NFT into multiple pieces. This process makes sense especially for high-value NFTs, which are unaffordable for most of us. We can own a piece of fine art, for example, thanks to fractions.

Fractal NFTs work as follows. The ERC-721 format that most NFTs use is indivisible. With smart contracts, it is possible to create multiple ERC-20 tokens and link them to an ERC-721 token representing the entire NFT. As a result, each ERC-20 holder owns a share of it.

The most well-known platform for trading fractional NFTs is Fractional, where NFT owners can mint NFT vaults and, in return, receive ERC-20 tokens representing 100% NFT ownership. Owners can use these ERC-20 tokens in DeFi apps to earn rewards without selling NFTs. Or they can sell fractions on the platform. Interested buyers can also bid at or above the reserve price to acquire the entire lot.

Conclusion

DeFi and NFTs are mutually beneficial. These can be combined to create upgraded versions of standard financial instruments such as lending and borrowing, and also enhance the functionality of NFTs.



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