The two latest thrilling things in the Ethereum ecosystem are NFT and DeFi. Until 2020, these "Money LEGOs" were quite isolated from each other but became the arena of many new projects, innovations, and volume records. And I'm sure that there's more room to grow and blend.
Over the past year, we've seen the crossovers of these two technologies. DeFi + NFT protocols are now some of the most exciting blockchain projects in the industry. In this article, I will show some projects and try to explain the core idea of blending the two mechanics within the Ethereum ecosystem.
Blockchain Cuties Universe
Blockchain Cuties Universe is one of the most exciting projects among the DeFi games. On the one hand, the project's technical edge is to use five blockchains to run the project. On the other hand, the team believes that the synergy between NFT and DeFi will push the game's economy and engagement to new heights.
To achieve a sustainable token ecosystem, Blockchain Cuties Universe will introduce the Blockchain Cuties Universe (BCUG) token. BCUG will support a variety of new game mechanics, such as:
- DAO governance;
- DeFi yield rewards;
- NFT upgradability;
- Token-powered, community-driven development.
niftex
niftex is a protocol for fractionalizing NFT tokens into liquid ERC-20 tokens. Thus, niftex opens the possibility of collective ownership of expensive and highly demanded NFTs. Collectors can attempt to redeem all ERC-20 shards of NFT token to gain full ownership.
NFTfi
NFTfi is a marketplace for NFT-collateralized DeFi loans. Users can lend NFTs or borrow them. Once a user repays the loan, the asset will be transferred back. If a user doesn't pay back the total repayment amount before the due date, the asset will be transferred to the lender.
NFTX
NFTX is an NFT index fund protocol. The basic idea is to bring liquidity to illiquid NFTs, such as CryptoPunks, by creating tokenized index funds like $PUNK. A project governance token, NFTX, is used by the project community for decentralized management of the protocol.
Rarible
Rarible is a digital artist-focused NFT platform and marketplace. The turn to DeFi began when Rarible decided to introduce a token, RARI, and take steps towards developing the platform towards a decentralized autonomous organization (DAO). RARI token holders (which include NFT creators and collectors) can vote for platform updates and participate in market moderation.
The project developers also plan to launch an index on NFT, a special product for people who want to invest in the NFT market but aren't sure which works of art to choose.
Yearn Insurance NFTs
Yearn.finance is one of the most well-known and successful projects in DeFi, which is why its yInsure yield insurance project has become incredibly popular in both the DeFi and NFT sectors. These tokenized insurance policies can easily be sold on NFT markets like OpenSea and Rarible.
Despite its history since 2016, the NFT ecosystem is still very young but very promising and full of revolutionary ideas. And DeFi's "Money LEGOs" have a large number of possible and already implemented use cases. Therefore, the blend of these two technologies will drive the development of cryptocurrencies and expand users' audiences.
The projects mentioned above are among the earliest capable of combining DeFi and NFT mechanics. The blend of technologies primarily carries two essential components: an increase in liquidity and new governance mechanisms.
It's crucial to increase NFT liquidity for further technical development and to engage a new audience. That's why I consider the technology of NFT-tokens fractionalization as a new important step. Besides, the projects providing indices for NFT-tokens or NFT-market segments allow users to interact with the market, bypassing the high entry threshold.
Other mechanics are also important: the most important thing is voting. Many projects are moving towards DAO, spreading their governance tokens in different ways to stimulate and encourage the community around the project.
The next couple of years will show how productive the blending NFT and DeFi technologies will be and whether it can attract new users to the ecosystem without major problems. For now, every step towards a serious rise in user numbers (e.g., CryptoKitties and Uniswap) entails the surge of transaction cost and network bottlenecks.
The sword Damocles won't be hanging over for long: either Ethereum 2.0 can partially solve the network bandwidth problems, or projects will continue to migrate to other blockchains for further stable work.