NFTs: The New A-Listers on the DeFi Stage
Non-fungible tokens (NFTs) are growing with the flourishing crypto market. Their advent signals the boundless innovations this ecosystem makes possible. They are finding roles as dramatis personae in the greater play of decentralized finance. Yet, NFTs are newcomers and are not widely understood.
They are also poised to explode.
NFTs represent ownership of goods that lack uniformity and interchangeability. In this regard, they are more akin to real estate or fine art, which cannot be blindly traded for another asset of their kind. What makes these tokens so promising is that they are limited, indivisible, and unique.
However, despite the burgeoning potential of NFTs, they have proven rather illiquid. This does not go against expectations, as many NFTs confer ownership on works of art and other collectibles. This illiquidity is changing however, thanks to the introduction of these assets to decentralized finance (DeFi).
Lending protocols are a major component of DeFi, and are predominantly effectuated by collateralizing the loan. One party places an asset as collateral in order to borrow currency. The asset acts as a protective measure for the lender, and if the loan is not paid back, the lender can seize ownership of the collateral. In the traditional financial system, non-fungible assets are typically used as collateral. The world of decentralized finance is beginning to follow suit.
In some DeFi models, lenders choose which NFT to accept as collateral, and the NFT is placed in an escrow contract. If the loan is not paid in full with interest in the allotted time, the NFT becomes the property of the lender.
One of the most exciting uses of NFTs is within the domain of yield farming and liquidity mining. These DeFi applications assist in giving users incentive to create new markets for tokens. Yield farming is broadly the strategy that puts crypto assets into liquidity pools to generate the best returns. Liquidity mining gives further yield to farmers as new tokens are generated in addition to the return that the farmer receives for adding liquidity to a pool.
NFTs have come to play a role in yield farming, with the likes of yieldfarming.insurance. This platform enacts the staking of NFT tokens from various locations (yNFT, Rarible, and Nexus Mutuats) to provide liquidity for the farming of SAFE tokens.
The creation of Y.Insure itself showed how NFTs can take on jobs standard ERC-20 tokens simply cannot handle. The class of non-fungible tokens called ERC-721 is considered fit for providing the specific properties inherent to insurance policies.
For those who are familiar with Lattice Exchange and how it will add to yield farming and liquidity mining, the potential usage of NFTs in this DeFi application becomes very exciting. Lattice enables price stability by aggregating thick liquidity and, by providing fast transactions with nominal fees, farmers need not worry about optimizing their gains.
As The Daily Chain’s Carlos Park pointed out, “Lattice will have the ability to execute algorithmically complex orders across multiple exchanges. With these functions, both market and limit orders will be easier to code and implement. Lattice’s programmability will enable users to exit positions faster and with fewer fees in a more automated manner.”
With all of these benefits Lattice can create a blossoming environment for yield farming, yet these will not be the only features that attract farmers and liquidity providers. Considering that the majority of Lattice’s governance tokens ($LTX) shall be unlocked through liquidity mining, this gives an extra douceur to anyone considering which decentralized terrain is the most fertile.
NFT’s application seems as boundless as the imagination. They are being employed not only in the ownership of art, collectibles, and insurance policies, but even in real estate (both virtual and real-world).
In the case of virtual real estate, there is the blockchain-based game, The Sandbox. As of September 17, the game has sold over 1.5 million dollars in non-fungible tokens that allocate ownership to specific parcels of land within the game. This becomes even more impressive as this has all occurred in the pre-sale, before the game has even been launched.
Yet it is not just virtual real-estate that has been tokenized. The real-world is also seeing this shift. In 2018, Open Law, a blockchain firm announced an initiative in partnership with ConSensys for the transfer of real estate through smart contracts executed on the Ethereum blockchain. The initiative makes use of the non-fungible ERC-721 class of tokens.
The specific attributes donned by this versatile class of tokens permits the storage of property records on the blockchain. The deployment of its protocol began in Australia; the property law there presents a favorable climate for blockchain-based real estate initiatives. In Australia, once a transfer of a title is registered, the new ownership is simultaneously coupled with a new property title, and registration. Smart contracts on the blockchain allow for efficiently expediting this process.
Given the facility and lack of ossification intrinsic to contract codes on the Constellation Network, it is easy to see the kind of future these real-world use-cases for NFTs really have. The improvements that come with the network will permit a more mainstream employment of NFT-backed contractual agreements.
Non-fungible tokens have found a place within DeFi and the wider platform of distributed ledger technology. With the unique use-cases of these tokens continuously growing, it is apparent that we shall witness an explosion in this asset class.
Given the advances that Lattice Exchange brings to DeFi, and the flexibility and evolutionary edge offered by the microservices employed by the Constellation Network (which leaves traditional smart contracts in the dust), I posit that the ease-of-use, efficiency and effectiveness that comes with this will only result in an even wider and more secure space for NFTs to thrive.
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Lattice is a DeFi application built with Ethereum and Constellation’s Hypergraph Transfer Protocol (HGTP). Empowering users using advanced AMM algorithms.
Authored by John Ryan
John Ryan is an independent writer and an avid enthusiast of blockchain technology. He received his University education at Northern Michigan University, as a history major, where he was inducted into the Phi Beta Kappa Society for academic excellence. While in Michigan, he also trained as an athlete at the United States Olympic Education Center, where he achieved the status of a multiple-time University All-American in Greco-Roman wrestling. He has authored several plays and a collection of poetry. Some of his major areas of interests includes: Finance, Literature, and Religious Studies.
John is available to contact via email at: arete.aphthiton@gmail.com
