NFTs

By definition, a fungible asset is a type of asset that is interchangeable with other assets of the same type. Currency is a fungible asset. After borrowing a $100 bill, the borrower can return the amount either in a combination of bills of different denominations or in a different $100 bill. The value of the dollar $100 remains the same in both cases. A non-fungible token in the world of blockchain technology and decentralized finance has been developed similarly.

An NFT is the tokenized version of a non-fungible asset. Instead of a fiat currency like USD, AUD, or GBP, these tokens may represent artwork, real estate, or collectibles. Popular digital games, such as Decentraland and CryptoKitties, frequently leverage these tokens. There are a few features that make a token non-fungible. To start with, the ownership of NFT is unique. It can not even be substituted by another matching NFT. These tokens are not separable. Every NFT has defined ownership and privileges.

NFTs in DeFi

NFTs are the next promising trend in the world of DeFi. It helps to expand the market of collaterals in DeFi lending. In fact, a DeFi lending and borrowing platform requires collaterals. These collaterals are generally the crypto-holdings. With the introduction of NFT, one can now put other types of assets as collateral. For example, an artwork or a real-estate property can be tokenized as NFTs and put up as collaterals. The use of NFT goes beyond the realm of collaterals. It has the capability of representing more complex financial products. These products can be insurances, bonds, or options. In insurance, each contract is converted into NFT. These NFTs can be traded on a secondary market.

Another DeFi model that has been adopted in the world of NFTs in the issuance of governance tokens. Many platforms and NFT marketplaces have started issuing and distributing their governance tokens.