What are NFTs and how can they be used in decentralized finance?

When it comes to DeFi, NFTs can unlock even more potential for decentralized finance. One of the most interesting ideas is to use NFTs as collateral. This means that now you’d be able to supply an NFT representing a piece of art, digital land or even a tokenised real estate, as collateral and borrow money against it.

Are NFTs Decentralised?

— the art is non-fungible and lives forever in a decentralized manner on the blockchain. Although NFTs are often associated with digital art or GIFs these days, the reality is that they are better understood as a class of assets that are non-fungible.

Can you use NFTs as collateral?

Founded by Stephen Young in February 2020, NFTfi acts as a marketplace where users can get a cryptocurrency loan on their NFTs and offer loans to borrowers against their NFTs. In other words, users can use their NFTs as collateral to get loans from other users on the decentralized and peer-to-peer system.

What can you do with NFTs?

NFTs are even used to ensure the provenance (historical record of ownership) of luxury goods. Non-fungible tokens can also be bought, sold, and traded on digital marketplaces like OpenSea and Nifty Gateway.

Are NFTs stored on the blockchain?

In essence, Non-Fungible Tokens are virtual representations of an asset. These tokens are provably unique and non-interchangeable. Now, most NFT smart contracts are based on the Ethereum ERC721 standard. As a result, the code for each smart contract is stored on the blockchain – and it’s not going anywhere.

What does NFTs stand for?

Non-fungible tokens
Non-fungible tokens, or NFTs, are pieces of digital content linked to the blockchain, the digital database underpinning cryptocurrencies such as bitcoin and ethereum. Unlike NFTs, those assets are fungible, meaning they can be replaced or exchanged with another identical one of the same value, much like a dollar bill.

Does NFTs have intrinsic value?

But NFTs have no cash flow (in some cases the underlying asset might produce cash flow, but then the intrinsic value is in the underlying asset, not the NFT). They do not have consumption value since they are not consumed. The only kind of intrinsic value an NFT can have is the pleasure of owning it.

What are NFTs and why should you use them?

This space is really new, but one of the companies that use this model is NFTfi. Besides being used as collateral, NFTs can also represent more complex financial products such as insurance, bonds or options. Yinsure from Yearn Finance is a good example of NFT usage in the insurance space.

Can you use NFTS as collateral for Defi lending?

Currently in DeFi, the vast majority of DeFi lending protocols are collateralized. One of the most interesting ideas is to use NFTs as collateral. This means that now you’d be able to supply an NFT representing a piece of art, digital land or even a tokenised real estate, as collateral and borrow money against it.

What is an nftfi loan?

The NFT that is used as collateral is kept in an escrow contract and if the borrower defaults on their loan by not repaying the borrowed amount + interest on time, the NFT is transferred to the lender. This space is really new, but one of the companies that use this model is NFTfi.

What blockchain do NFTS run on?

Although NFTs can be implemented on any blockchain that supports smart contract programming, the most noticeable examples are ERC-721 and ERC-1155 standards on Ethereum. Before we get into the NFT standards, let’s quickly recap what ERC-20 is, as it will be useful for comparison.