Have you ever heard of NFTs being used in DeFi?
DeFi NFTs
This is post number 5 in my "What is an NFT?" series here in the LBI world. The first post was a sort of general overview of NFTs as a whole for noobs, the second post was a deep dive into how vIRL NFTs can be used for commerce, the third post was an overview of how musicians can sell music as NFTs, and the fourth was some ways that blendable NFTs can be used for various things. If you wanna learn more about NFT technology and some of the use cases, I encourage you to take a peak at those posts.
As always, the goal here is to highlight some things that can be done with NFTs aside from just profile picture JPEGs. The technology has a ton of use cases that are being overlooked by people trying to get rich flipping over-hyped collectibles. Today, we're here to look at how NFTs can be used in DeFi.
So first, we need to establish what DeFi is for the noobs. DeFi is short for decentralized finance. What this means is that people can use the exchange or platform without permission from anyone or doing an kind of know your customer verification. Take PolyCUB for example, it's the latest DeFi platform created by the LeoFinance team. You just connect your wallet and start doing degen stuff lol.
Now that we've established what DeFi is, let's dive into how NFTs can be thrown into the mix. If you still don't know what an NFT is, consider scrolling back up and checking out some of the other posts in the series. I wrote a couple months ago about a platform called NFTfi that allows users to take out loans against the value of their NFTs. This is something that has always intrigued me because it allows us to access the liquid value of the asset without selling it.
Just like how you can take out a loan against your assets like your house, but with NFTs. So if you happen to own a couple blue chip NFTs like Bored Ape Yacht Clubs or whatever, you could take a loan against the assets and purchase a house. The platform wins off fees and if you default on the loan, the platform or lender keeps the high dollar NFTs. This also creates a situation where you can avoid paying taxes on the capital gains taxes from selling said high dollar NFTs.
Instead of selling your Bored Ape that you minted for like $400 in ETH for $300,000 and taking a 43% haircut on the capital gains taxes for that... You could lock the in the NFTfi platform and take out a loan in cryptocurrency then pay it back over time without ever selling the NFT.
Not only does this allow the owner of the NFT to access liquidity without the owner selling it, but it allows the lender to earn interest on the cryptocurrency they lend out. So maybe they earn 5% in interest on the $300,000 worth of cryptocurrency but they don't have to worry about losing their funds. If the borrower default on the loan, the lender immediately has access to those NFTs and can liquidate them on the market for more than they lent out.
This removes the need for a bank to be involved or the need for anyone to provide any information, aside from their wallet address. Wanna buy a car but only have NFTs because you're a complete degenerate like me? Can't go down to the car dealership and offer them a Beeple NFT for a car. You can, however spend cryptocurrency at some dealerships or just sell the crypto you borrowed against your NFT to make the purchase.
The funny thing is that this gives a use case to the stupid monkey JPEGs I always talk about. They're now able to be collateralized to take out loans. This kind of thing is possible with physical assets, but much more cumbersome. Locking NFTs in a smart contract is way easier than trying to get a loan off your house.
Some platforms coming out even allow you to stake your NFTs in their platform to earn crypto. This can currently be done on R-Planet, which is a game on the WAX blockchain that's sort of a DeFi platform in itself. I'd love to dive more into this but It's been a super busy day and I don't wanna bore you.
What are some ways you could see NFTs used in DeFi?
Post written by: @l337m45732 aka NiftyPhill.