Non-Fungible Tokens (NFTs) Poised to Become a Vital Cog in the DeFi Machine


Impossible to fabricate due to the unique identifying information provided by smart contracts, NFTs are becoming the go-to digital collectibles. Even in the traditional space, collectibles have provided people with the value of acquiring a social status. Thanks to the flexibility of Ethereum’s blockchain, NFTs are emerging into much more, signifying the next stage in the evolution of DeFi.

Abandoning Fungibility?

The world of blockchain tokens and decentralized finance (DeFi) is full of innovation and surprising oddities. One of them is the NFT — Non-Fungible Tokens. The immediate question that pops up, once you learn what NFT stands for, is why would there be a token that’s stripped of its greatest feature — fungibility?

After all, the entire strength of the cryptocurrency/DeFi system lies in its ability to facilitate the swapping of any asset (usually ERC-20-based) with any other such asset of equal value. Without this fungibility, the whole system would be rendered meaningless. Why then would NFTs come into being? It would be like trying to send part of a movie theater ticket to someone, expecting it to hold the same value as an intact movie ticket.

Fortunately, it is not too difficult to understand. If something is unique and indivisible (non-fungible), it becomes a scarce resource. In turn, we know from the economic law of supply and demand that when something is low in supply, it tends to gain in demand, leading to its increased value. This is why the preeminent cryptocurrency Bitcoin (BTC) has a limited supply of 21 million coins that can ever be mined, representing digital gold.

Likewise, non-fungible tokens (NFTs) gain value by being unique and rare. Moreover, the loss of intrinsic value drawn from fungibility is compensated by NFTs novel use cases:

  • Artwork
  • Virtual in-game assets, from real-estate to clothing
  • Digital collectibles

Just like ERC-20 fungible tokens, NFTs are powered by smart contracts but they use the ERC-721 token protocol instead.

How Do NFTs Work?

Thanks to the power of the programmable Ethereum blockchain, dApps (decentralized applications) cover a wide range of needs, just as any software would. After all, DeFi protocols/networks such as SpaceSwap, Uniswap and Compound are nothing but dApps for the financial sector. However, with the flexibility and interoperability of blockchain and smart contracts, finance often intersects with other spaces. One of these is gaming. 

e3ebe47cc9c633d6b538bcd13e24391441a07dac9d49c141a51408e291925146.png

Source: DappRadar

As of January 2021, blockchain gaming has increased in daily activity by 35%. Likewise, blockchain games have increased in trading volume by 191%, rising to $54 million worth of traffic. The NFT marketplace more than matched this growth with its 226% gain. In total, since DeFi’s inception in 2017, people have spent over $174 million on NFTs. 

4a85c6b4de4cf24d810d340826d67c8cf5f56c6a2bef04d4813e570f7b6e09d4.png

Source: DappRadar

As you can see from the above graph, NFTs only gained traction in the last couple of months. Let’s take a look at a specific example to see how gaming, NFTs and DeFi yield farming can be smoothly layered on top of each other, creating a thriving marketplace.

Of the hundreds of blockchain-powered games, the latest newcomer is Cometh, which was launched on 8 February. It’s a spaceship game that follows a familiar path for this genre — earning money while exploring the galaxy, incentivized by the prospect of new, superior spaceships. However, Cometh is not just a game, it is a DeFi game in which you earn tokens while playing: the swappable MUST ERC-20 token and NFTs in the form of ERC721 and ERC1155 tokens. 

03281c2601c816e5e7163087af0fded9eed4deb5aea6f916b89396bdcdd47730.png

 

Cometh represents this yield farming of tokens with asteroid mining. Whenever you position your spaceship close to passing asteroids, you can mine its tokens. Of course, the better your spaceship, the better the yield farming. The lure is that all of these spaceships represent NFTs that are tradable on marketplace platforms. The biggest platforms for trading a variety of digital collectibles are:

You may ask why people would want to buy these NFTs? In the case of Cometh, NFTs can be exchanged for MUST tokens, which is the game’s core fungible token fueling its economic model. When other players use one of your spaceships, you earn MUST. Furthermore, you can redeem 30% MUST cashback for every spaceship.

Essentially, Cometh is gamified DeFi with NFTs on top to increase engagement. So far, this business model seems to be working. Within the last week, the DeFi game achieved a $1.32 million volume from 1,370 transactions.

bd640d6e74b13e42bc7fd374fffb0e8fe316b5dc37fb309f6c2bae6d69eeaf84.png

In the early stages of the NFT economy for digital collectibles, a record-breaking sale was achieved that’s comparable to physical art in the traditional art scene. Created by Trevor Jones and José Delbo, a Batman NFT was sold for 302.5 ETH, representing $200,000 at the time of the sale. The latest record happened in January, with the Alien NFT from Cryptopunks selling for 605 ETH, which is worth $761,889.

Currently, if you search for Batman on Rarible, you can still find some pieces for 6 ETH, which would be worth $10,791 at the time of writing this article. Of course, Rarible itself is a dApp serving as a marketplace. Its current market capitalization is $21.3 million, running on the RARI token that has a supply of 855,330.

Using NFTs as a Funding Model

017f94b1bad42918186453ad2f9b61828f7bcd7ac60a0d53e0dd26ccbcdfce6c.png

Thanks to Elon Musk’s SpaceX, space has become a favorite theme permeating the culture. While Cometh settled for merely gamifying a DeFi feature of farm yielding, other DeFi projects are more ambitious. Among them is the innovative SpaceSwap with its two-token economy, MILK2 and SHAKE.

You may have heard of SpaceSwap when it pioneered the ground-breaking ShadowStaking technology that allows investors to skip the step of staking liquidity provider (LP) tokens. Instead, users can keep their funds in their wallets, thus effectively providing a gasless investment experience.

Such solutions benefit the entire DeFi ecosystem. To further grease the funding machine that makes these solutions possible and to materialize SpaceSwap’s ambitious roadmap, NFTs come into play. The one-stop DeFi station has already run two NFT waves. In the first, the SpaceSwap team sold all 100 NFTs listed on Rarible.

After this initial success, they tweaked the second wave of NFTs by providing users with three new NFT pools. Your APY (annual percentage yield) will depend on the NFT you choose. Those priced higher will yield more APY. Then as your stake in the pool increases, so do your rewards. Afterwards, you can sell your claimed NFTs on Rarible for Wrapped ETH (WETH). What’s more, the SpaceSwap team decided to create special ‘partnership NFTs’. As the team has announced, there will be 10 partnership/collaboration NFTs (7 will be available at the start of the campaign and 3 more will be released in future campaigns). If a user collects them all, they’ll get a special animated NFT that comes with 3 months worth of farming. 

0a1707649ea01967907eb655dd6b82a6ee0b1a2e108e454cf4566d59d6560377.png

NFTs as Fortified Collectibles

From CryptoKitties to CryptoPunks, if this pace of astronomical price tags continues, NFTs will soon surpass the one million mark. This may sound crazy at first. However, when you think about it, this is merely a continuation of societal trends since time immemorial. Throughout history, works of art have achieved legendary status, effectively becoming priceless because of their uniqueness and the social status enjoyed by those wealthy enough to have them.

Non-fungible tokens simply digitized this aspect of human society, with the additional perk of making them indestructible, indivisible, non-interoperable and verifiable. Those who own NFTs, whatever they may be, can trust the non-fungibility of smart contracts to safeguard their assets till the end of the internet.

In this rising ecosystem within an ecosystem, multiple parties benefit. Artists and coders gain an additional pathway to funding while end-users can accrue a treasure trove of one-of-a-kind assets without even having to pay for a vault!

How do you rate this article?

13


SpaceSwap Captain
SpaceSwap Captain

I am the Captain of SpaceSwap team. Please join our project: www.spaceswap.app


SpaceSwap Captain
SpaceSwap Captain

The blog of the Captain of SpaceSwap team. The SpaceSwap project aims to become a one-stop-station for major DeFi protocols. Welcome to our project: www.spaceswap.app

Send a $0.01 microtip in crypto to the author, and earn yourself as you read!

20% to author / 80% to me.
We pay the tips from our rewards pool.