The most recent non fungible token (NFT) boom may have you thinking that NFTs are all about digital art and collectibles. Well, for a brief period, they were — after all, who could ignore the infamous Beeple piece selling at Christie’s for $69 million?
In reality, however, tokenizing digital art is just one of the many possible NFT applications. Put simply, NFTs are versatile digital certificates of authenticity. Anything that would benefit from having its ownership more easily transferable, verifiable and interoperable with the blockchain is likely to end up being represented by an NFT in the future.
This is where Financial NFTs come in.
Financial NFTs include everything from insurance and bonds, to unique baskets of tokens, to tokenized real-world assets — and they’re set to become the largest single use of NFT technology so far.
A major example recently showed up in Uniswap v3, which began to issue liquidity provision tokens (claims on tokens supplied by market makers) as NFTs — that’s $1.3 billion in value currently represented as NFT assets from a single protocol.
Aside from Uniswap, there are a variety of ways NFTs have already begun to be utilized for financial purposes. This includes:
- Yearn.finance insurance contracts underwritten by Nexus Mutual being sold as NFTs on Rarible.
- Investment contracts being programmed into NFTs by Solv Protocol, for improving the transparency and transfer of project tokens.
- Combinations of different fungible and non-fungible tokens being combined into “basket” NFTs by UFiT DAO.
- Existing NFTs being combined with interest-bearing ERC20 tokens by Charged Particles.
NFTs are set to capture a large proportion of value in decentralized finance (DeFi), a rapidly-growing sector already holding almost $60 billion in value. Just a conservative 10% of DeFi positions represented as NFTs would equate to $6 billion in financial NFT assets — and the DeFi pie isn’t anywhere near done growing.
We have DeFi for fungible tokens, but what about NFT assets?
Currently, the world of DeFi makes it exceptionally easy to earn a return on fungible tokens and borrow loans against them. Popular trustless protocols such as Compound and Yearn have grown hugely popular for allowing users to do exactly this.
But when it comes to NFTs, there isn’t much infrastructure to borrow or earn a return at all. For a new multi-billion dollar market, there is a huge need for this to be addressed. It’s also worth mentioning that financial NFT holders aren’t just art collectors who don’t care about opportunity cost — those holding financial NFTs need to account for every penny.
Preparing for the Future of NFT X DeFi
With a potential financial NFT boom around the corner, Drops believes that it might have the answer to many of the challenges financial NFT holders will face when looking for ways to get the most out of their financial NFT assets.
Drops is a multi-featured platform that enables these financial NFT holders to trustlessly borrow fungible assets including Ether (ETH) and stablecoins against their NFT assets. These loans can be used as the borrower wishes, for use in staking, yield-farming, or simply to avoid having to sell an NFT asset when the owner needs a quick source of funds.
Taking it one step further, Drops plans to have yield-farming vaults built into their platform by late 2021, enabling NFT holders to seamlessly earn quantifiable returns by staking their NFTs.
The Drops team believes that the Protocol will prevent a lot of headaches for users who currently have very few options with how to leverage their NFT assets. By providing quantifiable returns on NFTs, Drops is designed to significantly reduce the opportunity costs of holding the next generation of financial assets and enable the sector to flourish.
Drops has already partnered with Solv Protocol and Charged Particles — two of the aforementioned projects that are paving the way for the financial NFT revolution. The Drops platform is currently integrating the use of Solv and Charged Particle NFTs to enable holders to leverage their assets effectively.
