NFT-Fi: Why It’s Time to Pay Attention

“Just keep shipping.” The seemingly old adage has become something of a war-cry for developer teams across Web3 – inspiring the notion that, despite market volatility and turbulence, teams continue to produce.

As Web3 continues to undergo its maturation process, the space will notice seismic shifts across its primary verticals: NFTs and DeFi. Already, we have witnessed the evolution of NFTs from speculative hype cycle to tangible building block for real-world asset verification. DeFi surged from degen playground to a safe haven for asset self-custody. All told, this is merely just the beginning of what’s to come. 

The NFT landscape is in the midst of its own growth cycle – expanding from pictures of animals to the basis of a robust economy. DeFi and NFTs, individually, have both generated massive support from enthusiasts, and both promise to continue expanding the potential of Web3. Interestingly, the two sectors are inching closer together, forming the phenomenon known as ‘NFT-Fi.’

Together, the two sectors have limitless potential, and their blending could unleash an entirely new world of value.

Surging NFT Popularity

NFTs rose to stardom in 2021, sparked by Beeple’s $69 million sale of the piece “Everydays: The First 5000 Days”. Although this sale served as the public catalyst for NFTs, tokenized digital artwork first surfaced in 2014. In an attempt to reduce counterfeiting and replication within the art space, Kevin McCoy minted the world’s first NFT, entitled “Quantum,” on Namecoin in 2014.

The minting of “Quantum” prompted a monumental shift within the art world, as NFTs offered a viable means to immutably represent ownership, verification and authentication in a trustless manner. The development of tokenized artwork enabled creators to certify ownership that was not only easily tracked, but also easily transferable. 

Immediately following the first iteration of NFTs, more notable collections were born – from CryptoKitties to CryptoPunks. Although they were not embraced fully at the time, the eventual hype cycle of NFTs would inspire a global craze – with countless celebrities bidding for high-profile PFPs. From this perspective, NFTs were largely responsible for a mass introduction to Web3. Based on the number of wallets created since the NFT explosion in late 2020, at least 17-20 million global non-native crypto users purchased at least one NFT.

While NFTs found firm footing as something of a status symbol, market volatility proved that even the most blue-chip NFTs were not immune, and that owners required more than an animal-based NFT to deliver long-term value. This realization would lead to the exploration of alternative use cases and utility for NFTs, as well as methods for NFTs and decentralized finance to intersect.

The Inception of NFT-Fi

2022 was witness to a dramatic collapse of the NFT market. Without meaningful utility, the asset class became an object of speculation, subject to the same boom-bust cycle that has plagued cryptomarkets. Millions of dollars were poured into projects from a JPG of Jack Dorsey's first tweet to former President Trump's playing cards, but novelty did not provide a lasting foundation. 

NFT-fi emerged from the ashes of the speculative era, providing tangible utility to holders and developing a bridge between DeFi and NFTs.

Intersection of NFTs and DeFi 

One such example is Crown Ribbon, a project that has the potential to disrupt the $300 billion performance horse industry. It serves as a stepping stone towards tokenizing real-world assets by streamlining the cumbersome and dated process of investing in racehorses through shared syndicate ownership.

By providing liquidity, financial tools, and access to a global audience, Crown Ribbon is paving the way for other industries, such as real estate, high-end physical art, and luxury goods, to tokenize their assets as NFTs.

Race horses are just the beginning—the possibilities are endless. We see real estate projects, high-end physical art, and other luxury goods, all being tokenized as NFTs. NFT-fi makes it possible to tokenize any type of RWA (real world asset) to be traded on-chain, with the potential to bring in the largest onboarding of value onto the blockchain ever.

Another milestone in the world of NFT-Fi was the first house sale as an NFT on OpenSea. This groundbreaking event demonstrated the power of NFT-Fi in transforming the way people buy, sell, and trade real estate. By tokenizing properties as NFTs, the real estate market can benefit from increased liquidity, reduced transaction costs, and enhanced accessibility for a global audience.

The success of this first NFT house sale signals a shift in the real estate industry, as more properties are expected to be tokenized in the future. Being able to tokenize real-world assets like real estate also has implications for using NFTs as collateral in DeFi markets. By using NFTs as collateral for loans, participants can access funding without going through the traditional banking system. This process not only bypasses intermediaries but also creates a more inclusive financial system, where anyone with digital assets can participate.

Advent of NFT Pools

As the NFT-Fi ecosystem continues to evolve, it's becoming increasingly clear that tokenizing real-world assets on the blockchain can unlock significant value for investors and businesses. However, this value is often locked up in illiquid assets that are difficult to monetize without selling them off completely.

This challenge has been exacerbated by the recent decline in NFT sales. NFT sales volumes declined more than 50% in the last two quarters of 2022. Although this type of oscillation is not entirely uncommon, it became clear that creators and collectors needed alternative methods to earn income on their collections beyond simply buying and selling. 

Enter NFT pools, which offer a new way to generate income from digital assets while retaining ownership of them. With NFT pools, users can deposit NFTs into pools and receive a normal ERC-20 token for each NFT deposited. Not only can these ERC-20 tokens can be used across a variety of DeFi use cases, they can also be used to represent fractional ownership of NFTs when purchased through DEXs like Uniswap.

NFT collections can each deploy their own dedicated NFT pool, so anyone can deploy a pool for any collection. By pooling NFTs together, each deposited NFT is interchangeable with any other NFT from the same collection.

This allows users to swap NFTs within the pool, with smart contracts ensuring that pooled NFTs are always fully backed by an NFT from its respective collection. Instead of listing NFTs on OpenSea, traders could also liquidate their collectibles by simply depositing their assets into an NFT pool to receive an ERC-20 token. From there, users could swap that token within the DEX interface to generate instant liquidity. 

This seamless integration of NFTs into DeFi markets not only creates new opportunities for investors but also underscores the importance of NFT-Fi today.

Web3 growth will be inspired by the new use-cases and disrupt existing industries with their NFT-fi ethos. With plans to expand access to real-world asset tokenization, the road is being paved for projects to interact and build with blockchain in ways never thought possible before. It’s time to start paying attention to NFT-Fi.

The lead image for this article was generated by HackerNoon's AI Image Generator via the prompt "nfts".