11 Projects Building a Strong Foundation Beneath the Marriage of DeFi and NFTs
Meet the teams making the NFT market nearly as complex, flexible and liquid as the rest of crypto.
Digital collectibles on blockchains are driving the retail mania for crypto higher right now, in part because they are cool and in part because the market seems to have finally come to this consensus: Provable ownership of digital items can accrue real value.
When there is real value, there is finance. These collectibles, also known as non-fungible tokens (NFTs), have proven lately to have very high values.
“NFTs are a foundational building block of the emerging virtual economy," Stephen Young, the founder and CEO of NFTfi, said in a press release.
The latest data point in the ongoing story of the marriage of NFTs and decentralized finance (DeFi) is the new funding for NFTfi, a project that allows borrowers to post digital items as collateral. NFTfi announced Thursday an $890,000 investment round from backers including CoinFund, 1kx, The LAO and Dapper Labs CEO Roham Gharegozlou, among others.
NFTfi is one of several companies making it a lot easier to get money in, earn yield and get it back out of the digital collectible space.
How it works
NFTfi is basically like DeFi giants Compound and Aave, both money markets, but those two use fungible collateral, like ETH or various stablecoins. NFTs are non-fungible and they are markets with less liquidity in them, making price discovery trickier.
That's changing fast with more and more products coming onto the market making it easier for liquidity to flow through the many creations. And remember, this is crypto: Changing fast means a wildly different thing in this industry than in the pokey old world of mobile phones and social networks.
"As NFTs re-imagined how we produce and define ownership of digital content online, we’ll also, in turn, begin to re-imagine a whole new category of financial services based on these new building blocks," Lasse Clausen, a partner at the venture firm 1kx, said in a press release.
Beyond NFTfi, here are 10 more projects that are making the NFT market nearly as complex, flexible and liquid as the rest of crypto:
The startup, whose platform makes fractional ownership of NFTs possible, is working on a new version with lots of new features. For example, it will be able to allow creators to earn royalties on trades of fractions, governance over the underlying NFTs for holders of a fraction and other tools that allow for more fine-grained ownership. Also, a decentralized autonomous organization (DAO) is coming to govern the whole application. "Fractional ownership of songs, books, other content is a no-brainer. One edition, lots of owners, uniqueness is king," co-founder Joel Hubert told CoinDesk in an email.
This company created a DAO that built wrapped CryptoPunks, which made Larva Labs' pioneering NFTs more fungible. Ark has subsequently created additional tools to enhance liquidity for the original non-fungible token, and probably deserves some credit for today's white-hot CryptoPunks market. It is currently working on Blank.Art. "We will launch NFT projects that are appropriating financial concepts and themes for artistic purposes," Ark's Roberto Ceresia told CoinDesk in an email.
Mintbase is a platform that makes it easy to mint non-fungible tokens. It had an investment round recently led by Sino Global. Obviously it primarily enables users to mint on Ethereum, but the NEAR blockchain has gone out of its way to be compatible with the original smart-contract chain. Right now, Mintbase is launching a feature on NEAR that allows royalties on sales to be shared with up to 1,000 people. "That really is the fractional ownership part everyone is talking about," COO Carolin Wend told CoinDesk.
This one enables community-owned index funds so that one token represents ownership in many NFTs. It has tokens for specific categories of NFTs and others that represent a spectrum of the market. "There are, however, many people out there that don’t have the time or knowledge to trade individual NFTs but would like exposure to NFT markets. These are the NFTX target users," the firm wrote in January.
This protocol aims to enable any NFT to be wrapped or embedded with an ERC-20 token. So just in case there was any doubt an NFT had value, a user could wrap it with interest-earning tokens, such as the Aave tokens, and it would have value beyond any doubt. This is basically the same as what the forthcoming Aavegotchi game is doing. What will it mean for non-fungible and fungible assets to become roommates? Time will tell.
According to its white paper, "Zora provides a cryptographically enforced registry of media independent of any platform." One of Zora's creators, Jacob Horne, told CoinDesk in an email, "We've directly built the market into the NFT, and we've created a net new auction model specific to NFTs. Zora auctions are perpetual, anyone can bid in any currency, the owner can accept any bid." If that sounds head-scratching, check out this new genre of poetry built with the help of the Zora team.
"Unifty is an NFT management system. Think of it as 'the WordPress of NFTs,'" Markus Medinger of the Unifty team told CoinDesk in an email. Unifty has a marketplace coming with new features around copyright management and value drops, among others. The platform is somewhat unique in that it largely functions off Ethereum. "We already support xDai, BSC [Binance Smart Chain], Polygon [née Matic], Celo and Moonbeam Alpha. Multi-chain support is actually one of our expertise," Medinger added.
This is an as-yet-unreleased project for crowdsourcing NFT appraisals. "The next step for financialization is solving the NFT price discovery problem in a capital efficient way," CoinFund's Jake Brukhman told CoinDesk.
A peer-to-peer trading project for NFTs, still in beta. Be careful!
This group is all over NFT financialization, from investing in the sector to building tools to make it more robust. It runs a decentralized exchange for NFTs, has its own approach to fractional ownership and also has products built for NFT security. The company is teasing a game now that promises to make DeFi more game-like. "Polyient Games is our decentralized ecosystem designed to drive forward NFT innovation, both internally and via third-party participation," Craig Russo, one of the co-founders, told CoinDesk in an email.
State of the market
The original DeFi players have not made a lot of noise directly around NFTs yet. Scott Lewis of DeFi Pulse is involved with NFTX and Aave invested in the video game that uses its tokens, Aavegotchi. “Aave community has enormous interest,” Stani Kulechov, CEO of the money market Aave, told CoinDesk in an email.
Normally this is the part of the post where we'd tell readers just learning about NFTs and DeFi that they should take a very small amount of ETH or stablecoins and just buy some little things and play around. None of this stuff really makes sense until a person tries it. Unfortunately, right now, it's impossible for most people to spend a negligible amount of money in DeFi because transaction fees ("gas," in Ethereum parlance) make everything expensive.
Layer 2 platforms are those that sit atop Ethereum and other blockchains, taking advantage of the underlying blockchain's security while also allowing cheaper, faster transactions. NIFTEX's Huber told CoinDesk he foresees layer 2 solutions being very important to this sector, but too little liquidity has moved onto any one layer 2 to make it worthwhile for an app like his to move there yet.
"Gas has really made it hard to enjoy the DeFi playground on ETH mainnet," Marguerite deCourcelle of Blockade Games told CoinDesk. Blockade is in the middle of moving its users to the layer 2 now known as Polygon. "I think we're about to see a lot more users and developers on L2," she said.
If the games go onto layer 2, the financial apps are sure to follow shortly.
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