While in 2020 decentralized finance (DeFi) was all the rage, 2021 has seen the rise of non-fungible tokens (NFTs), which are essentially digital certificates of ownership of a scarce asset on a blockchain.
After $400 million in gross sales of NFTs were consummated in 2020, some $1 billion were completed in just the first quarter of this year. That includes $230 million in transactions involving NBA highlights. It includes the sale of the first tweet by Twitter founder Jack Dorsey for a cool $2.9 million. And it includes the sale of a collage of digital images by the artist Mike Winkleman (a.k.a. Beeple) for $69.3 million.
Beyond offering a virtual platform for artists, NFTs have become a central part of the virtual economy, as they are being used to tokenize hard valuable assets like real estate, jewelry, racehorses, fine art and fine wine. It is expected, in fact, that NFTs will transform the worldwide web itself. As Nitan Gaur, founder and director of IBM Digital Assets Labs, wrote for Cointelegraph.com in early April:
(T)he NFT movement is indicative of a larger token revolution that will not only fuel massive innovation and growth in Web 3.0 protocols but also test the resolve of the DeFi movement, along with its ability to intersect and provide platforms and an exchange vehicle for all token types.
Gaur went on to explain that while earlier iterations of the web made it possible to circulate information, they were not designed with the idea of circulating items of value. The new-look web, dependent as it is on edge computing, decentralized data networks and artificial intelligence, will be able to do that.
In other words, the marriage of DeFi and NFTs can be expected to play a critical role in this transformation. Already we have seen the development of platforms like NFTmall, an NFT marketplace that is powered by DeFi and eCommerce and provides even greater exposure for artists and other content creators. We have seen the emergence of NETfi, which enables borrowers to post digital items as collateral, thus heralding a redefinition of financial services.
NETfi, in fact, underwent an $890,000 investment round in February, and is one of a dozen companies making possible the coupling of DeFi and NFTs. Consider Ark Gallery, which has developed tools to make NFTs more fungible. Consider Zora Protocol, which has created an NFT auction model. Consider Unifty, which has designed a management system that is “the WordPress of NFTs,” as one of its team members, Markus Medinger, informed CoinDesk. And consider Polyient Games, which has both invested in NFTs and developed a decentralized exchange for the technology.
All of this was neatly summarized by Lasse Clausen, a partner at the venture firm 1kx, in a news release circulated to Coindesk and other finance-related outlets:
“As NFTs re-imagined how we produce and define ownership of digital content online, we’ll also, in turn, begin to re-imagine a whole new category of financial services based on these new building blocks.”
Certainly that can be expected to continue. Certainly NFTs will continue to be robust, continue to thrive. And it appears that its looming marriage to DeFi will play a significant role in its ongoing surge.