Use Cases for Combining NFT with DeFi

I can’t even say for sure what has become the hotter crypto topic of the past year, NFT or DeFi. Both directions have shown incredible growth and generated public interest. Let's take a look at the numbers.

According to DeFi Pulse, the dollar value of assets locked into DeFi protocols surpassed $13 billion at the end of 2020. And as reported by NonFungible.com, the total value of NFT transactions in 2020 exceeded $250 million.

Many experts argue about which option is more promising for investment, but there is also another opinion. Why choose one direction when you can connect both DeFi and NFTs?

Current DeFi NFT projects

Indeed, the combination of decentralized finance and non-fungible tokens looks interesting, and we already have case studies to prove it.

For example, the decentralized platform NFTfi provides loans against NFT collateral. If a borrower fails to meet its obligations, the ownership of an NFT passes to a lender.

Another example is Yearn.finance, which offers tokenized insurance policies that can be traded on NFT markets like OpenSea and Rarible.

And how not to mention niftex, which allows you to trade ERC20 fractions of NFT and makes it possible to jointly own expensive and rare non-fungible tokens.

In fact, wherever DeFi is available, NFT can be implemented, from gaming and fine arts to digital identity, licensing, and insurance. For example, you've probably all heard of Aavegotchis, a crypto collectible game that uses DeFi and yields to create NFTs that can retain value and increase over time. Aavegotchis is quite feature-rich and it’s more than just a game. This is an interest-bearing game. Without NFT technology to identify unique assets, such options wouldn’t have been possible. And without DeFi, it wouldn't be so profitable.

Why DeFi and NFT is a Good Combination

Many industries still have to deal with the consequences of Covid-19, and one of the problems is that current business systems are no longer meeting user needs. In this regard, more and more businesses have started to adopt innovative technologies.

The point is that the NFT is the additional fuel that makes the DeFi machine even more innovative. It is important to understand the concepts here. NFTs represent unique assets, objects for buying/selling.

And DeFi is a set of tools through which these assets are realized. Based on this, DeFi unlocks the full value of NFTs, bringing them to more profitable decentralized markets and increasing their liquidity.

In turn, NFTs become an excellent add-on for DeFi tools that expands the variety of use cases.

One of the earliest ideas for combining NFTs and DeFi was to use new unique tokens for DeFi lending. In this case, NFTs can act as collateral. For example, nftfi allows a borrower to apply for a loan using the NFT as collateral.

If the lender considers the NFT to be valuable, the loan is issued. NFTs are often valued based on their value in secondary markets. The fulfillment of the condition is ensured, of course, by smart contracts.

This case demonstrates the potential of the DeFi and NFT combination outside of gaming and other entertainment industries. NFT is also an opportunity to incorporate unique digital and real-world assets into the digital economy and get profit.

Final thoughts

Current business use cases show that the combination of DeFi and NFT is an excellent tool for attracting new users to the blockchain ecosystem. These technologies are giving rise to completely new types of services, including investment, liquidity mining, gaming, and many other areas.

Now the ideas for combining DeFi and NFT look truly limitless, and only time will tell which ones are viable and which ones prove to be useless.