- What is DeFi
- What is NFT
- The Hype around NFT and DeFi
While the early news around crypto predicted the sudden emergence of a new financial world, many investors learned fairly quickly that the most popular cryptocurrency, bitcoin, was actually quite limited. However, the crypto developers were on a spree to discover more innovative approaches to leverage this technology.
And then there came the evolution of DeFi. A decentralized finance (DeFi) system allows people to create financial products or “smart contracts” that execute actions automatically on the blockchain – without any bank, brokerage, exchange, or corporation acting as an intermediary. While people were still getting used to DeFi, the year 2020 and 2021 saw a sudden rise in interest around NFT. While many called it a bubble, we are sure that this bubble has a long way to burst.
In this blog, we will uncover and analyze the hype around DeFi and NFT. Before we discuss what happened around the year in these two technologies let us first understand them in brief.
What is DeFi
Just how Bitcoin allows various entities to carry a copy of their transaction history and is not controlled by a central source. Similarly, DeFi is distinct and is ever-expanding the usage of blockchain technology from easy to complex use cases of finance.
It is a big umbrella under which lies various financial applications that are pushed and geared by blockchain. Read in detail about what is DeFi and what the top 5 DeFi cryptocurrencies are.
What is NFT
Non-fungible tokens(NFTs) are digital assets that represent real-life entities such as in-game items, art, music, videos, etc. Along with the buy and sell of cryptocurrencies these NFTs are also traded in the digital market. The platform used for their trading usually has the same network as cryptocurrencies.
Although, NFTs have been in the market since 2014 but have gained unprecedented fame because they have become a vehicle to buy and sell digital art. Since 2017 a sum of $174 million has been spent on non-fungible tokens(NFTs). Learn everything you need to know about NFT here.
NFT Vs DeFi
Decentralized finance (DeFi) is a movement that is used to leverage the decentralized networks such that the old financial products are transformed into transparent and trustless protocols that can run without any middlemen while the Non-fungible tokens(NFTs) is digital asset that represents a real-life entity such as in-game items, art, music, videos, etc as discussed earlier. Which is better? Well, there is no better. Both the technologies have their perks and cons. While DeFi serves a completely different purpose, NFT is mostly for entertainment or collection purposes.
Here is a detailed analysis of NFT Vs DeFi.
The Hype around DeFi and NFT
At the end of July 2021, the market capital for DeFi products was hovering near $80 billion. While that was down from its May peak of more than $89 billion, experts believe that the figure will rise in the coming year. Without the raft of regulations and oversight that other financial products carry, the innovative uses for DeFi are only limited by the imagination and creativity of the people writing the smart contracts that govern how any specific product functions.
The sophistication of the Ethereum blockchain adds advanced capabilities to the DeFi projects.
Non-fungible tokens (NFTs) have received great attention, and people are writing DeFi scripts on Ethereum to do other fun stuff like lotteries. One of the popular DeFi right now is Creating fair and no-loss lotteries that pay out randomly. Interesting, isn’t it? Margin trading and currency swaps are other frequent uses for DeFi. Experts believe that soon there will be DeFi products targetting institutional investors. Most of the DeFi projects are based on Ethereum which is of significant advantage to investors.
The sophistication of the Ethereum blockchain adds advanced capabilities to the DeFi projects. This is why the Ethereum blockchain offers an entrance into the most innovative and advanced financial instruments in the cryptocurrency world, using DeFi in combination with currency-backed stablecoins and other cryptocurrencies.
Experts say that Trends are signaling that almost all tradeable assets will soon have digitized proxies (often in the form of a cryptocurrency token) for use on a blockchain. Stocks are a likely contender to be digitized first; Apple and Tesla already have crypto tokens circulating that mirror their share price. It has been analyzed that As more institutional investors seek to incorporate DeFi products into their strategies, performing deep blockchain analysis to vet these products, understand pricing and gauge their status at any given moment will become standard practice.
Summing it Up!
Cutting the long story short, it won’t be an exaggeration to say that both NFT and DeFi are here to stay. Experts believe that what people once called a bubble, will become a trillion-dollar industry in a matter of years or two, as the NFT market today already stands at a billion dollars. The same goes for DeFi. There are many innovative DeFi projects springing up and making a significant impact on the world we see today.
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