Financial NFTs and Decentralized Finance (DeFi) can include anything, from insurance to bonds and from unique baskets of tokens to real world assets.
The implementation of NFTs into the world of crypto additional finance is something that we are expecting to happen in the near future. In fact, financial NFTs can include anything, from insurance to bonds and from unique baskets of tokens to real world assets. The cutting-edge utility structures inherent in NFTs can and most likely will be leveraged by real world financial corporations and businesses in the near future.
Because NFTs are versatile digital certificates of authenticity, this means that they can be applied to any sector that would benefit from having its ownership more easily transferable, verifiable and interoperable with blockchain technology. This most definitely includes the likes of traditional finance and Decentralized Finance (DeFi).
As more financial institutions (FIs) explore NFTs, we look at how they could impact the financial services industry.
The wealth management sector already views clients’ high-end physical collectibles as an integral part of an investor’s portfolio. And now more banks are also exploring digital collectibles like NFTs as assets, tech solutions, and marketing tools. Primarily, banks are looking at them within the context of the metaverse, where real-world assets can be bought and sold as NFTs.
Goldman Sachs said it is exploring “NFTs in the context of financial instruments,” according to the bank’s global head of digital assets Mathew McDermott.
JPMorgan opened up a lounge in the metaverse where users can buy virtual plots of land with NFTs.
And Japanese bank Nomura is seeking to grow its presence in cryptocurrency and NFTs.
Finding NFTs’ use in finance:
The tech underpinning NFTs could be useful for FIs.
NFTs let companies record and transfer digital assets on the blockchain so that owners can store data while protecting it from loss or corruption. This system could help banks and FIs more easily deal with the challenges associated with handling and securing sensitive data.
This could be helpful in allocating royalty payments, for example. Sometimes royalties have more than one owner and it’s not obvious who should be paid. With NFTs, it’s obvious who owns an asset.
NFTs could also potentially help banks bring in new customers who don’t trust crypto and are put off by blockchain tech’s complexities.
FinTechs and banks can benefit from trading NFTs in the same way that anyone can benefit from selling collectible assets. For example, Konvi gives investors exposure to rare assets like fine wine and watches and plans to add NFTs in the future.
NFTs can open the door to DeFi and fintech innovation.
In addition to enabling greater security, blockchain technology offers a multitude of benefits for financial institutions. These include lower friction for transactions due to automation and a higher level of customization for financial products and services. As NFTs continue to proliferate, the adoption of decentralized finance (DeFi) will be much more transparent and direct for all players and participants.
The combination of NFTs and DeFi will yield fintech innovation, at least in the near-term. In the same way that blockchain funds have emerged in response to the growing value of cryptocurrency,we're also seeing an emergence of NFT-related funds, like NFTX.
NFTs can become increasingly collateralized.
Already, NFTs are starting to be used as collateral for loans. Many NFT collectors are using services like Arcade to connect with NFT owners interested in borrowing money by collateralizing their NFTs. Lenders are able to charge much higher interest rates than that of traditional loans and borrowers are able to access funds without having to sell their digital assets.
Looking ahead, especially as the third age of the internet, Web3, is being built based on blockchain technology, opportunities for digital collateralization abound. There's almost nothing that exists today that doesn't also have a digital shadow — even banking transactions — which means that anything that can be digitized can serve as conceptual collateral.
Examples of Financial NFTs
The intertwinement of Defi and NFTs has led to the development of a new and slightly under the radar use case for non-fungible tokens, called NFT-fi. This sees DeFi assets such as yield bearing tokens, liquidity provision tokens, lending and borrowing collateral, wrapped into NFTs to enhance network efficiency and ease of transferability.
Uniswap V3
A great example of this would be the unique use of financial NFTs put forward by the Uniswap V3 protocol, which issues liquidity provision tokens. These are essentially claims on tokens supplied by market makers and they're represented as NFTs. And with Uniswap V3 currently boasting a total value locked of over $3.3 billion, that's one major use case for its DeFi NFTs.
NFTfi
In parallel with Uniswap, NFTfi is slowly but surely starting to make its way into the more traditional defi ecosystem and we're furthermore witnessing the rise of NFT specific platforms and marketplaces, offering DeFi infused functionalities.
These include the likes of NFT collateralization, fractionalization, staking, lending and borrowing fungible tokens against NFTs and even some innovative NFT yield farming solutions.
Yearn.finance
Yearn.finance insurance contracts are being marketed as NFTs on Rarible and are underwritten by Nexus Mutual. The insurance policies are tokenized in the form of NFTs. Your insurance policy as a unique NFT, also called yNFT, can be transferred, bought or sold. You can also stake your yNFT (ETH, DAI, SAFE-DAI, wNXM) and farm SAFE tokens.
Charged Particles
Charged Particles is combining existing NFTs with interest-bearing ERC20 tokens. The groundbreaking Polygon-based protocol lets you put digital assets inside your NFTs. Now ordinary NFTs can contain a digital charge inside, giving you the unprecedented power to create nested NFTs. It allows users to turn their NFT into a basket holding any token even another NFTs.
Conclusion
While there's no crystal ball to predict the future, it's clear that NFTs will continue to shape the financial industry, and blockchain will be an important part of that. As more financial institutions use NFTs as investment vehicles, the ones with a clear NFT strategy in place will be in a prime position to reap the benefits.