A non-fungible token (NFT) is a digital asset based on blockchain technology. Each one is unique and can represent any unique item in the real world. Decentralized finance (DeFi) provides a financial system that does not require traditional intermediaries and achieves automation and transparency through smart contracts. Combining NFT with DeFi can create a new digital asset paradigm and provide users with more value and opportunities. On this basis, one more thing can be added, which is the integration of DEX.
We know that with the development of applications on public chain networks, there are more and more tokens representing governance rights, and the types and quantities of DEX (decentralized trading applications using automatic market maker models), which are places for circulation and trading, are increasing. is increasing, and at the same time, this track is also constantly improving user experience through version iterations and new products.
DEXs represent innovation in cryptocurrency trading. Just last year, the activity of these decentralized, non-custodial platforms was dwarfed by CEXs, but since then, DEXs have caught up and surpassed centralized services in transaction volume within a few months. , allowing users to better control their assets and conduct new types of transactions. The CEXs that continue to grow appear to be those that offer the widest variety of assets, making them attractive to the most active traders.
NFT as collateral: In traditional finance, borrowing and lending usually requires providing cash or other valuables as collateral. However, in the world of NFT, NFT can be used as collateral. Through smart contracts, holders can use their NFT as collateral to obtain liquidity or borrow funds. This provides NFT holders with more liquidity options and converts their digital assets into real-world value.
Earning rights of NFT: NFT represents the only ownership, but in the real world, many assets have income rights. By combining NFT with DeFi, the benefits of NFT can be realized. Holders can convert their NFT into income-generating tools, such as leasing, dividends, etc., and automatically distribute income through smart contracts. This combination brings more sources of income to NFT holders and provides new investment opportunities for investors.
NFT trading and market liquidity: Combining NFT with DeFi can provide higher liquidity and transaction convenience for the NFT market. Through smart contracts and decentralized trading platforms, users can buy, sell and trade NFTs more easily. At the same time, by establishing NFT index funds or liquidity pools, the overall liquidity and investment efficiency of the NFT market can be improved.
Insurance and risk management of NFTs: Because NFTs are unique digital assets, their security and risk management are particularly important. DeFi can provide insurance and risk management solutions for NFTs. Through smart contracts and decentralized insurance protocols, the security of NFT can be ensured and insurance compensation can be provided to holders. This combination provides guarantee for the stability and development of the NFT market.
The combination of NFT and DeFi will bring huge innovation and opportunities to the digital asset field. By using NFT as collateral, rightsizing returns, improving transaction liquidity and risk management, it can provide users with more value and opportunities. However, we must also recognize that when developing these combination solutions, legal, privacy and technical issues that may arise should be actively explored and resolved to ensure that this combination can continue to promote the development of blockchain technology and digital assets.