NFTFi is a term that the community has been mentioning a lot in recent days, and it is predicted to be the next trend along with AI, LSD, ZK… Especially after Blur (BLUR) was listed on several exchanges and gave a huge airdrop to users, the community has paid even more attention to this NFTfi sector. But what exactly is NFTfi, how is it related to NFT? Can it become a trend in the future? What are the best NFTfi projects? Let’s find out in detail in the content of the article below.
What is NFTFi?
First, to understand what NFTfi is, you need to know about NFT (Non-Fungible Token). In general, an NFT is like a “certificate” of “ownership” of a work/asset, and this certificate is stored on the blockchain.
You can read more: What is NFT? A complete and correct understanding of NFT
NFT has been around for a few years, but it really exploded in 2021, when NFT games became popular and many famous NFT collections were launched. However, by 2022, things seemed to slow down. People realized that NFTs are not as easy to speculate/invest in as regular tokens, and they have a significant disadvantage: POOR LIQUIDITY.
Many people have bought/owned expensive NFT assets, but then are unable to sell them, and the price of NFTs continues to decrease. Generally, the reason for NFT’s poor liquidity is:
- Most famous NFT collections are collectibles and their owners do not trade them frequently.
- The “blue-chip” NFT collections (BAYC, Cryptopunks, DeGods, …) are usually very valuable, so few people can afford them.
- For NFTs of some games, it depends on the community of that game, so the user base is not large. Not to mention, many NFT games have seen a decline in users later on.
So, what is NFTfi?
NFTfi is a combination of “NFT” and “Finance”, aiming to “increase NFT liquidity and optimize cash flow” for NFT collectors. NFTFi will allow the use of NFTs on decentralized financial platforms, creating liquidity for NFTs with the help of smart contracts.
NFTFi projects will also allow NFT owners to optimize their cash flow, creating additional incentives for them to buy and hold NFTs as a long-term potential asset rather than just a means for speculation purposes.
Example: You believe that the Pudgy Penguins collection may increase in value in the future, but instead of just keeping the NFT in your cryptocurrency wallet as it is, you can now leverage your position by using your Penguins as collateral to have more investment opportunities.
Some Key Components of NFTFi
You already understand what NFTfi is? However, NFTfi is not just about lending, leasing NFTs, but it has many different areas. The most popular include:
- NFT Marketplace (NFT exchanges)
- NFT Lending/Borrowing
- NFT Renting
- NFT Aggregators (Price aggregation from multiple NFT exchanges)
- NFT Fractionalization
- NFT Derivatives
NFT Marketplace
The Marketplace model – NFT exchanges – is the most common today, connecting buyers and sellers of NFTs and being the main source of liquidity for the NFT market.
Currently, there are many different NFT exchanges, but the majority are “centralized”. Centralized exchanges often maintain a bid-ask mechanism, making NFTs less liquid compared to other investment channels. NFTs in the same collection can be listed for sale at different values depending on rarity or other attractive features, leading to price differences between NFTs.
The use of various valuation methods, even subjective valuations, has widened the gap between the asking price and the acceptable selling price of most NFTs on the market today.
NFT Lending/Borrowing
Lending NFTs is an evolving field in the NFT industry. Similar to DeFi lending, but instead of collateralizing cryptocurrency, you will collateralize NFTs. Then, you can receive cryptocurrency in return. The intersection of DeFi and NFT opens up many possibilities for NFT holders by making their NFTs much more liquid assets.
To ensure safety for lenders, projects can set appropriate liquidation thresholds when the floor price of NFT collections decreases. For example, the JPEG’d project allows the use of NFTs to create stablecoin. For the buy-now-pay-later model, the buyer must pay an amount upfront to receive the NFT and then pay the remaining amount within a specific time frame. Platforms that support this service include Wing Finance, ApeNow, and BendDAO.
NFT Renting
NFT Renting means renting out NFTs. Imagine you own an NFT with a utility (especially in games). You can either use this utility yourself or rent out the NFT for a fee.
The process of renting NFTs will be as follows:
- The NFT owner lists their asset on the rental market. Renters can then engage in renting.
- The NFT is placed in a smart contract with certain terms and conditions. These conditions include rental fees and collateral of higher value than the rented NFT to protect the lender.
- Once the contract expires or the renter no longer needs it, the NFT and the collateral will return to its original owner.
NFT Renting is still new as a business model in the world of NFTs, and therefore it is still prone to exploitation of loopholes. For example, the ApeCoin airdrop for BAYC holders. A user rented 5 BAYC NFTs before the airdrop to qualify their wallet for the ApeCoin airdrop. They received the ApeCoin airdrop and the NFT owner earned $800,000 thanks to the NFT rental service.
NFT Derivatives
NFT Derivatives are a type of “derivative” service for NFT products, created in the form of option contracts, futures contracts, or other contracts (such as swaps).
This allows users to have more ways to speculate on NFTs. For example, you don’t just need to buy NFTs and wait for their value to increase, you can still profit when the value of NFTs decreases (e.g., NFT Derivatives are similar to derivative trading in the cryptocurrency market). They help to open up many possibilities for NFT liquidity when using leverage to trade NFTs. This area is very promising, as the derivatives market in TradFi is significantly larger than the spot market.
However, if you engage in this field, remember that NFT derivative tools are high risk, especially when using leverage, as it can increase losses. The larger the growth, the greater the loss. And currently, only a few top NFT collections are allowed to trade derivatives.
NFT Aggregators
Aggregators are a “price aggregation solution from different NFT platforms” with the purpose of making it more convenient for users to buy or sell NFTs. Instead of having to browse many different exchanges to find the best price, investors only need to participate in a single NFT Aggregator platform and can still get the best price. Currently, there are many popular NFT Aggregators such as OpenSea, Blur, Rarible, SuperRare, Nifty Gateway, and Mintable.
Each platform has its unique features, for example, OpenSea has the largest number of NFTs, Blur has the cheapest fees. Rarible allows free NFT creation and more flexible customization, SuperRare focuses on digital and unique art, Nifty Gateway specializes in NFTs from famous artists, and Mintable allows easier NFT creation through interaction with various blockchains.
NFT Fractionalization
Fractionalized NFT, also known as “NFT fractionalization,” is a new way to help investors and the general public access high-priced blue-chip NFT collections more easily. Fractionalizing NFTs into smaller parts makes them easier to trade on the market. This process helps share NFT ownership through a set of fungible tokens linked to the original NFT.
This is done by converting NFTs into fungible tokens with the ERC-20 standard, similar to yield-bearing tokens of DeFi projects like AAVE’s aToken or SushiSwap’s xToken.
Fractionalized NFTs have the advantage of allowing small investors the opportunity to own high-potential NFTs without needing a large capital investment. However, the downside is, to reassemble your NFT, all the small fragments of that fractionalized NFT must be sold. The process of “putting it back together” can take a lot of time.
Top Most Promising NFTFi Projects 2024
NFT-Fi is a tool that we think is extremely necessary to improve the current state of the NFT market. As long as NFTs exist, NFTfi solutions will certainly be noticed, and coins in this sector will attract investors. Therefore, instead of waiting for a strong wave and fomo when it’s too late, you can now follow some NFTfi projects on the market to evaluate and find the best “hidden gems” for yourself.
Below are some of the most prominent names for your reference:
Blur (BLUR)
Blur coin is the main currency of the Blur.io platform – a platform that combines NFT Aggregator (price aggregation solution from NFT platforms) and NFT Marketplace (Comprehensive NFT exchange) with the aim of optimizing NFT trading experience, as well as providing necessary tools for professional NFT traders in the Ethereum ecosystem.
In a short time after launch, Blur has attracted enthusiastic participation from the community with daily user numbers consistently ranking second, at about 1/4 of OpenSea.
There have been times when the daily trading volume of Blur exceeded OpenSea and dominated the top 1. This shows that Blur is currently a very notable and promising NFTfi project. Especially, Blur was also listed on some major exchanges like Huobi, Bitget, Bybit, OKX… making it easy for investors to access and buy.
Wing Finance (WING)
Wing Finance is a “Cross-chain Lending & Borrowing” platform supported by major names in the market such as: Binance Labs, DefiLlama, SushiSwap, etc.
Recently, Wing Finance launched NFT Pools allowing users to collateralize NFTs from top current collections like BAYC, Cryptopunks, MAYC, Azuki to receive loans in forms like ETH, pWING” for participating in other profit-seeking activities on DeFi.
Although recently launched, Wing’s NFT Pool has reached over $659,415 NFT Collateral TVL with Total Supply exceeding $1.1M. According to current price data, the WING token is trading around $8.3 and showing signs of “breaking through” the accumulation areas with the current “circulating supply” having reached over 73.62% equivalent to a $26.1M Marketcap.
X2Y2 (X2Y2)
X2Y2 is an NFT Marketplace platform with a user-friendly interface backed by prominent names in DeFi and NFT like: Uniswap, NFTGO, OpenSea, Nansen, etc. The X2Y2 development team is always active in researching the NFT market, reflected in the diversity of NFT collections on its marketplace.
With a volume of over $110M in 7D, ranking #3 on DappRadar just after OpenSea and Blur. This shows the business model of X2Y2 is highly effective and brings significant profits to the project.
JPEG’d (JPEG)
The JPEG’d project is a well-known “Lending & Borrowing” platform that combines DeFi and NFT. It allows Cryptopunk owners to create macro NFTs (NFDP) by using their punks as collateral.
Similar to “Wing Finance,” JPEG’d also integrates most of the hot NFT collections currently, and provides users with collateral loans based on the rarity and value of the NFTs. With a total market capitalization of about $28.2M, JPEG has undergone a “fourfold increase” from its lowest point and is currently “sideways” at $0.0014 with a trading volume of $2-3M daily. JPEG could continue to “explode” if the NFTFi trend takes off.
BendDAO (BEND)
BendDAO is an “NFT Lending” platform born during the late Bull-Run of 2021, and it is a name widely mentioned in the community due to its recent “over 600% price increase”. According to data from DefilLama, the platform is currently attracting a total of over $238.8M TVL on the network and has added over $100M since T12/2022 when $BTC was traded at around $16K.
According to statistics from Dune Analytics, the current reserve assets of BendDAO have been continuously increasing since mid-January, currently reaching over 95,000 $ETH. This further reinforces the financial stability of the project, making it one of the most promising NFTfi coins currently.
LooksRare (LOOKS)
LooksRare is a project that has built an NFT Marketplace platform with a variety of collections and products, offering users a completely new and unique shopping experience. Since its launch, it has achieved significant milestones.
LooksRare has “collaborated with many partners and famous artists” in the field of art and entertainment to develop unique and rich NFT content such as Netflix, Coca-Cola, and Mercedes-Benz. At the time of writing, activity on the LooksRare Marketplace has been “vibrant”, with the number of transactions increasing along with a “threefold increase” in trading volume on the network in the last 24 hours.
This article provides information about what NFTfi is and some suggestions for the best current NFTfi projects. Hopefully, the article has provided you with useful information to assess and understand this field, as well as find the best NFTfi projects to invest in. What is your personal opinion? How do you evaluate NFTfi? Do you think NFTfi will become the trend of cryptocurrency in 2023?
