It’s no secret that the DeFi space has been on a tear recently. However, that got many thinking. What will be the next hot crypto sector after DeFi?
After pontificating about this for some time, I reckon that NFT’s will be the one of the next biggest sectors in crypto.
The next booming component in this computerized economy would be the usage of Non Fungible Tokens by the more noteworthy mass in the year 2021. Effectively the utilization of NFTs has expanded in a consistent way and unquestionably this will be the flourishing component that pushes the crypto darlings in general.
What are NFTs?
A Non-Fungible Token or NFT is an uncommon sort of cryptographic token that addresses any extraordinary resource. These NFTs work as unquestionable verifications of legitimacy and possession inside the blockchain network. The NFTs are not compatible which presents shortage in the computerized universe of resources.
NFTs are the structure squares of a blockchain-fueled or appropriated record controlled world. These NFTs discover application in a few computerized things and cycles, for example, crypto gaming.The striking and first use-instance of NFTs in the crypto-collectible exchanging card gaming.
What is fungibility?
The term Fungibility alludes to the equivalent incentive among the resources. It suggests the option to trade an item or resources with different items or resources of a similar kind. These Fungible resources rearrange the cycle of exchange and trade of resources.
Use instances of NFT:
Gaming :
The most and mainstream use-instances of Non-fungible tokens is Gaming. Blockchain gaming permits players to safely exchange resources and offer a layer of credibility and undeniable nature to all the players.
NFTs gives a convincing answer for all advanced responsibility for things and permits clients to produce continuous income by using their gaming abilities.
Art:
With NFTs, anybody can purchase a creation and exhibit it by knowing the full history of the resources. For eg: Artist subtleties, date of origin, past proprietorship, estimation of resources and parcel more.
Craftsmen will get a greater installment for their fine art with the disposal of outsider expenses and with P2P installments.
Difficulties Faced in the appropriation of NFTs
Here are some significant obstructions which we face while creating and embracing the NFTs in reality.
The guidelines, which overcomes any issues between an incorporated and decentralized world.
The issue of framework
So Non-fungible tokens, or NFTs for short, are essentially digital collectibles. These cryptographic tokens represent something unique and have these four properties:
The classic example of an NFT is a crypto Kitty. However, there are two main NFT token standards right now. The first is ERC-721 which are straight up non-fungible tokens like crypto kitties and the second are ERC-1155 tokens, which combine the benefits of both non-fungible and fungible tokens together.
ERC-1155 tokens are particularly interesting for computer games. Mythical weapons on Fortnite are unique and can be issued as NFTs. However, the game has an in-game currency called bucks, which are perfectly interchangeable. This is why game developers kinda need both fungible and non-fungible tokens and ERC-1155 allows them to do that!
The NFT market is projected to hit $950 million in 2021. That’s a 95% increase versus last year. This is pretty solid, however, the DeFi market has already had a 120 x increase this year and stands at around $83 billion in value.
How NFTs can supercharge DeFi?
Yes, DeFi has grown a lot. However, it is basically contained to the current crypto ecosystem. DeFi loans are after all secured by cryptocurrency.
I think that the natural progression of all this is being able to lend against real-world assets. That’s damn exciting because it can open up DeFi to a completely new type of audience and fuel further growth.
There is one platform doing that right now and that would be Tinlake. They are also using NFTs to make that happen.
Now the Question is Why do NFTs have value?
Like all assets market interest are the key market drivers for cost. Because of the scant idea of NFTs and the appeal for them from gamers, authorities and financial backers, individuals are frequently set up to pay a great deal of cash for them.
Some NFTs also have the potential to make their owners a lot of money. For instance, one gamer on the Decentraland virtual land platform decided to purchase 64 lots and combine them into a single estate. Dubbed “The Secrets of Satoshis Tea Garden,” it sold for $80,000 purely because of its desirable location and road access. Another investor parted with $222,000 to purchase a segment of a digital Monaco racing track in the F1 Delta Time game. The NFT representing the piece of digital track allows the owner to receive 5% dividends from all races that take place on it, including entry ticket fees.
Some of the most expensive NFTs:
Despite the growth in popularity of NFTs, they remain relatively illiquid compared to the rest of the cryptocurrency markets, limiting their value. Now, a growing number of projects are starting to see the potential in merging the DeFi and NFT segments to power up the value in both.
Although this is still a very nascent field, a core feature that’s emerging is allowing NFT holders to stake their tokens in DeFi applications. So someone owning a rare Cryptokitty, or a piece of land in Decentraland, could use their NFT as collateral to obtain a loan in the same way they’d put down ETH.
This is the premise behind NFTfi, which bills itself as a “simple marketplace for NFT collateralized loans.” The borrower agrees to stake their NFT into a smart contract, which will unlock to the lender if the borrower fails to make their repayment.
Aavegotchi takes this a step further. Aavegotchis are ERC721 tokens represented as pixelated collectible artworks. Each has specific attributes that determine its overall value and rarity within the Aavegotchi universe. Each Aavegotchi ERC721 token manages an escrow contract address that holds an Aave-backed aToken, generating a yield on Aave lending pools.
It effectively means those holding Aavegotchis can use them for liquidity farming.
What the future holds for NFTs
If this seems gimmicky, then remember that the entire NFT concept kicked off with digital cat artwork, but now globally recognized legacy brands such as Christie’s are getting involved. Taking the idea further, the fusion of DeFi and NFTs offers the intriguing potential to connect DeFi to other assets, including those in the real world.
Currently, the only way to get involved in DeFi is to stake cryptocurrencies. Now, imagine that whoever bought the Christie’s artwork could stake that piece, worth $130,000, to obtain a loan(Christie’s sold a digital portrait of the Bitcoin code for the princely sum of $130,250). Furthermore, imagine if a real-world piece of art, or a car, or real estate, was represented as an NFT on the blockchain and could be staked as collateral
Conclusion
While these developments may be some way off, there are other reasons to believe that the NFT trend will gain further traction in 2021. When Cryptokitties first launched, there was little infrastructure in place to support an NFT economy.
Stablecoins were in their infancy, meaning users had to transact in volatile cryptocurrencies like ETH. Crypto derivatives hadn’t yet taken off, and the concept of DeFi was unheard of.
Today, all of these developments provide a solid basis on which an NFT economy can flourish.
In spite of the fact that it’s difficult to make any solid expectations, it doesn’t appear to be shocking to propose that now, NFTs can possibly turn into the following greatest pattern in crypto as we head into 2021.