DeFi Ecosystem & Crypto NFTs-Revolutionizing the World of Finance

The convergence of the Bitcoin boom overlaps the world’s financial systems, which are governed by the individual central banks of the respective countries. In the world of finance, this situation has introduced a new cryptocurrency market that’s growing popular by the day for various reasons.

Among those reasons is the existence of crypto NFTs. Essentially, these are Non-Fungible Tokens that a person can own, which signifies their ownership over a digital or a tangible real-world asset. These tokens exist on the blockchain, the same as bitcoins, and they are publicly traded globally.

These trades occur on the blockchain, which is a part of a digital but decentralized finance system that any person can access from anywhere. The DeCentralized Finance System also supports lending and borrowing activities of financial products besides trading under its various projects, one of which is the NFTs. To learn more about ‘What is a NFT?’ and other information regarding NFTs, click here.

What is the DeFi Ecosystem?

The DeFi system simply translates to being a medium that facilitates the public blockchain network, on which the financial products can be bought, leveraged, and sold globally without the central norms of individual regional banks levied on them.

DeFi Ecosystem

Such a system simply eliminates the middlemen like central banks,  government institutions, etc., to replace it with a secure software-based environment or ecosystem. This ecosystem allows peer-to-peer interactions between buyers, sellers, borrowers, and lenders without needing any form of ID or similar documents. Thus, allowing anonymity yet authenticity for transactions.

To enable an openly accessible and border-less finance system, DeFi utilizes numerous protocols and technologies. Together they function to eradicate the limitations of platforms and technology that currently play a role in non-decentralized financial transactions.

Smart Contracts can be viewed as a project or protocol within the DeFi systems that serves to automate the transaction agreement terms between concerning parties responsible for the sale or ownership of financial products such as cryptocurrencies or NFTs. These contracts are defined on the blockchain, which is playing its part dutifully in allowing modern financial systems to evolve beyond fiat money.

It is crucial to understand the value the DeFi Ecosystem brings to the current world, whether you want to capitalize on your investments or for the sake of comprehending the revolutionizing world of finance.

Value of Decentralised Finance (DeFi) System

With the introduction and real-time application of the Defi projects within the global financial market, the count of investors is growing along with the methods to exchange objects and assets financially.

The populace of investors now also includes the newer Gen Z and the Millenials in a significant share. These groups previously avoided the finance market entirely or chose not to get involved due to a rigid financial system.

Besides these aspects, the Decentralized Finance systems are typically independent of the operations of the economies of individual but powerful capital regions like New York, London, etc. The financial services of these regions and other regions can interact with the DeFi, but they cannot dethrone or upset the global economy entirely.

Decentralized Finance (DeFi) Ecosystem Components

The components of DeFi are similar on a broader scale compared to that of fiat money’s present global financial ecosystems. Having a stable currency and multiple use cases for exchanging them is necessary for the DeFi system to function. It is facilitated by stable coins or bitcoins and various forms of crypto exchanges, respectively.

DeFi Ecosystem

These functions are supported via smart contracts as they denote the terms and conditions of DeFi activities in the form of a code. Upon the breach of the defined agreement within the code, it automates collateral liquidation, harnesses one or more DeFi components, or performs other acts as mentioned inside the contract.

The various components that form the DeFi ecosystem are briefly listed as follows:

  1. KYC Identity & Compliance
  2. Infrastructure
  3. Stable Coins
  4. Asset Tokenization
  5. Liquidity Exchange Marketplaces
  6. Prediction Markets
  7. Asset & Wallet Management
  1. KYC Identity & Compliance

It concerts with solutions that handle data management on the blockchain that is related to identities and exchange protocols. The solutions existing within this space serve to ascertain the implementation of rules and deal with compliance matters for allowing the legal transfer of tokenized assets and crypto money.

  1. Infrastructure

The solutions within this component facilitate the smooth integration of blockchain technology, using which developers and users can acquire secure smart contracts and data across blockchain networks for enabling the ability to connect the different components and platforms of the DeFi ecosystem.

  1. Stable Coins

Stable coins are basically reserve assets built on the blockchain using digital algorithmic mechanisms. They can be backed by fiat money, precious commodities like silver, gold, etc., and are developed for offering privacy besides minimizing the volatility of value against cryptocurrencies. It is possible to exchange them against assets and financial products (NFTs) sold on the blockchain.

  1. Asset Tokenization

Digital Platforms offer asset tokenization services to organizations. It works to provide asset issuance and dematerialization facility on the blockchain by enforcing compliance. These platforms offer an interface to make the tokenized assets accessible to the subscribed investors and users.

  1. Liquidity Exchange Marketplaces

Marketplaces serve the DeFi ecosystem by providing a front to the users to engage in a peer-to-peer exchange of liquidity and assets. Such various marketplaces offer the audience to engage in peer-to-peer lending or borrowing of cryptocurrencies and special tokens of the ERC 721 standard (NFTs), which collectively drive the DeFi ecosystem.

  1. Prediction Markets

The prediction markets offer the users the chance to bet on events via forecasts which one can make by using smart contracts or cryptocurrencies. These platforms currently allow users to place non-limited bets on future world events, finance, sports, and other prospects.

  1. Asset & Wallet Management

Organizations that offer Asset & Wallet Management within the DeFi ecosystem make it possible for users to store and transfer digital assets and cryptocurrencies acquired from the blockchain securely. The wallets generally follow the ERC 20 protocol to store both of the previously mentioned financial products.

These components collectively comprise the DeFi stack at individual levels in various layers. Let’s learn how NFTs contribute to the DeFi ecosystem.

How Crypto NFTs Support the DeFi Ecosystem

Driving Ease of Trade

NFTs provide creators with the ability to sell their creations in exchange for cryptocurrencies or smart coins. One can link any asset or commodity to NFTs, which translates to minting or defining unique non-interchangeable items into Non Fungible Tokens via smart contracts.

DeFi Ecosystem

The smart contracts can also allow creators to earn royalties or make the NFT capable of being sold to other buyers besides containing the terms of ownership and serving as proof of authenticity of the asset.

The reason why NFTs are purchased increasingly is simple to understand when we consider the human nature of acquiring ownership of something valuable.

Utilizing Decentralized Intermediaries

An additional reason why NFTs are becoming popular is that they offer a global yet decentralized marketplace where anyone from anywhere can buy the desired token by exchanging cryptocurrency without paying hefty exchange rates, as is the case for fiat money.

Since it is also possible to purchase cryptocurrencies via fiat money, it makes it convenient for audiences to acquire the asset they desire from the seat of their homes. All without even having to visit banks or auction houses, and so on.

Driving Market Growth

The emergence of NFTs also helped establish NFT gateways that are a component of the DeFi system. Its development further allows audiences to have more avenues and availability of purchasing the commodities they desire. It results in the addition of creators who approach these marketplaces to obtain suitable rewards for their unique items and creations.

These reasons collectively advance the DeFi ecosystem infrastructure by increasing its trading prospects, offering NFT Art, NFT Music, NFT Stocks, Crypto NFT items, Retail NFT items, and so on.

Other Prospects of Crypto NFTs and DeFi

A real-world example of how NFTs add to the infrastructure of the DeFi system is by the proof of auction of the Beeple NFT, Grimes NFT, CryptoKitties, etc. The sale of such assets by incorporating blockchain technology advances the audience base interacting with the decentralized marketplaces.

 It also enhances the market’s diversity when the NFT auction houses and NFT gateways bring forth newer assets for enticing and attracting new users to the DeFi practices.

Additionally, with giant retail organizations like the NBA, NFL, WWE, Nike, etc., monetizing the NFT boom, the DeFi systems are further increasing their operations scale. Thus, ultimately driving the NFT price higher and increasing the adaptation of a modern decentralized financial system.

The Takeaway

The complete, comprehensible uses of DeFi are still largely unexplored. They are currently far less developed than their perceivable scope. To the common audience, these practices can offer seamless transactions for NFTs and other commodities.

Lastly, with a significant trade hub like Dubai striving to make its financial system transparent and decentralized, both NFTs and DeFi systems are here to stay and evolve.

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