NFT Finance: an overview of new technology in the crypto industry
In the summer of 2020, the crypto market experienced a boom associated with the release of DeFi. In just a few months, TVL’s valuation of the ecosystem reached $10 billion. The next equally significant decision for the industry was NFT. By mid-2021, the industry was valued at $2.5 billion. These technologies have transformed the cryptocurrency market. Not surprisingly, NFT finance has become a new trend. It is a combination of two technologies, where NFT capabilities are enhanced by DeFi technology solutions.
By using blockchain-based financial instruments, the liquidity of non-exchangeable tokens can be significantly increased. For example, DeFi applications allow investors to focus only on high-value NFTs and not waste time on less profitable assets. The use of protocols for lending provides the ability to use tokens as collateral for a loan. NFT Finance combines the best of both technologies to provide market participants with convenient solutions for buying, selling, exchanging, and otherwise transacting digital assets.
The technology provides solutions such as fragmentation and NFT leasing. The first tool allows you to share a token among multiple owners, each of whom gets their own set of NFTs tied to the original. This tool opens the crypto market to investors with small amounts of capital. They can now acquire a portion of high-value NFTs while increasing the liquidity of the asset.
NFT financing solution
NFT rentals are also primarily designed for small investors who cannot afford to operate with tokens from expensive collections. The service is available with or without collateral. In the case of a collateralized lease, the owner of the token places it on a market set up specifically for this purpose. As part of the transaction, a smart contract is signed that preserves the terms and conditions of both parties. The rental fee and the collateral are also placed there. When the contract expires, the deposit and the token are returned to their owners.
In the case of a lease without a security deposit, the tenant receives a packaged token with the same characteristics as the original NFT. When the lease expires, the owner of the asset receives the rent and the packaged NFT is burned. In this case, the risks for all parties are minimized.
Another NFT financing solution is derivatives. This instrument is a contract that allows market participants to bid on the value of new NFT collections. At the same time, there is an opportunity to trade assets using leverage.
NFT Finance is a promising new direction in the crypto industry, helping to attract investors with previously limited opportunities to the market. It can significantly increase the liquidity of both individual assets and the market as a whole.