NFTs and DeFi

I have an NFT, now what?

The use of NFTs doesn’t have to be limited to being in your digital wallet. At DeFi they can be of great use. Let’s take a look.

NFTs as collateral

An NFT is a digital asset like any other, so it can be used as collateral when borrowing another asset.

There are several platforms that allow this, the most famous being NFTfi, where more than $500 million is moved in the form of loans backed by NFTs.

It is a platform that connects people who want to borrow digital assets by leaving their NFTs as collateral with people willing to grant them these loans.

The process is as follows:

A person who wants a loan and has an NFT supported by the platform, registers on NFTfi anonymously and lists the NFT he wants to use as collateral for the loan.

You then set the terms you would like the loan to have. This is usually the asset you want to borrow, the amount of the asset, the duration of the loan and the interest to be paid.

Borrowers search through the NFTs listed on the platform and when they find one that is attractive to them, they then either accept the terms the borrower had set or send them another proposal.

Finally, when the borrower and the lender agree, the loan is closed.

What happens then, is that the loan money in the form of digital assets is transferred to the borrower’s wallet and the NFT set as collateral stays in a Smart contract on the platform.

When the borrower repays the loan plus interest, then automatically the loan money is transferred to the lender’s wallet and the borrower’s NFT is returned to the lender’s wallet.

If the borrower does not repay the loan by the due date, the lender can foreclose on the loan and keep the borrower’s NFT.

Fractionating an NFT

NFTs are non-fungible assets, i.e., no two NFTs are alike. Thus, it is normal for an NFT to belong to only one person.

However, there are platforms that allow the creation of normal (fungible) tokens that represent a partial ownership of an NFT. Thus an NFT can be partially owned by many people, like the shares of a company.

This can be useful for companies that want to finance themselves with the help of many small investors instead of one or several large investors, for companies that want to reward their community, and for small investors who want to be exposed to the price evolution of an NFT, but cannot buy it because it has a very high price.

One platform that allows you to create fractions of an NFT is Unicly.

The process is very simple, just choose the NFT you want to fractionate and set parameters such as the name of the token, the number of tokens you want to create or the percentage of the total tokens needed to unlock that collection.

Once the process is complete you can offer those tokens for sale to the general public.

The companies behind the NFT that has been fractionalized often carry out different initiatives to reward token owners. For example, they offer an interest to those who lock their tokens into the company or Unicly.

It is also common for them to create liquidity pools available only to NFT owners. In this way, only these people benefit from these returns.