“The craze of crypto has been around for a few years now but with the advent of the concept of NFTs and the DeFi, the craze has gone parabolic. Though DeFi is a promising game changer for the financial world, it had a sluggish start. With the Collateralized NFTs now being used for drawing loans, it can finally kick start a revolution in the financial world.”
The DeFi Market and Its Sluggish Start
Decentralized Finance (DeFi) was a vision of the fools a decade ago and today it has become a reality. Nobody ever believed that the structure of the financial market could be decentralized, but the DeFi market showed promise. Though, the blockchain and the crypto industry on which it is based is itself struggling against the pressure from the centralized regulators and thus DeFi had a sluggish start. The use cases are extremely limited at the moment.
The NFT-DeFi Confluence
The DeFi and NFT were previously two individual rivers flowing parallel to each other but now have reached a confluence point where they can merge and flow together. The concept of collateralized NFT loans has shown a new path that can lead to emergence of many use cases for the DeFi space and for the blockchain space as a whole.
The peer-to-peer platforms have now started to approve DeFi loans against NFTs as collateral and many have already availed these loans against the NFT assets they hold. To ensure that the lender is protected against the volatility in the market, the method of over collateralization is used. For example in order to avail a loan of 10 ETH, an NFT worth 20 ETH is kept as collateral. The specific timeline for the loan repayment is set at the time of the loan and on non-payment of loan, the borrower has to forfeit his collateralized NFT to the lender and the lender becomes the new owner of the NFT on the blockchain.
How is it going to Change the DeFi?
The NFTs right now are a huge source of wealth creation as an NFT bought for a few ETHs a few days ago can be sold for hundreds of ETH a few days later. This wealth creation craze might subside in the future, but with the NFT and DeFi confluence as a loan instrument can help in creating opportunities for both the lenders and the borrowers. The use of NFTs as a collateral can help in accessing the intrinsic value of these NFTs and the owner of the NFT can lend these NFTs for earning passive income or could take a loan against these NFTs to start a business or what not. This is a game changing innovation in the DeFi space.
Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.
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