NFTFi protocols were created to improve liquidity for NFTs as well as provide more incentive for collectors to buy and hoard NFT as an asset class with long-term value rather than a means of speculative facilities as it is now.
Main sections on NFTFi
Marketplace
The marketplace model or NFT exchange is the most popular now, which connects NFT buyers and sellers and also serves as a source of liquidity for the NFT market. However, the bid-ask mechanism makes NFTs less liquid than other investment channels. NFTs in a collection can be offered for sale at different prices depending on rarity or other attractive attributes. The fact that there are many valuation methods, even sentimental pricing, has widened the spread between the bid and ask prices for most NFTs on the market today.
Lending & Borrowing
Credit segment projects can be divided into two types: lending and pre-paid post-purchase.
Lending in NFTs works similarly to DeFi, however, the collateral is usually blue-chip NFTs to ensure liquidity. To protect lenders, projects can set an appropriate liquidation price threshold when the floor price of NFT collections fall. For example, JPEG’d allows collectors to use NFTs to mint stablecoins.
For pre-paid post-purchase projects, buyers have to pay an amount upfront to receive NFTs and then pay the rest within a short period of time. Platforms that support this service include Wing Finance, ApeNow, and BendDAO.
Derivatives
NFT derivatives is a decentralized asset created from financial instruments such as options, features contracts, or other contracts (like swaps). This allows users to own these assets easily as well as ensures privacy and safety.
Aggregators
Aggregator is a solution that aggregates prices from different NFT exchanges to make it more convenient for users to buy or sell NFTs. There are many popular NFT aggregator platforms such as OpenSea, Rarible, SuperRare, Nifty Gateway, and Mintable. Each platform has its own features; for example, OpenSea has the largest number of NFTs, Rarible allows create NFTs without fee, SuperRare focuses on digital and unique art, Nifty Gateway specializes in NFTs of famous artists, and Mintable makes it easier to create NFTs by interacting with various blockchains.
Others
Fractionalized NFT
Fractionalized NFT is a new solution that makes it easy for investors and ordinary users to access blue-chip NFT collections at a very high floor price. Protocols provide this solution by converting NFTs into fungible tokens complaints with ERC-20 standards, similar to yield-bearing tokens of DeFi projects like AAVE’s aToken or SushiSwap’s xToken
Valuation tool
NFT Valuation Tool is widely used in the community of NFT investments. This tool uses AI to analyze and give an estimated value of an NFT based on factors such as rarity, popularity, artist, and transaction history. NFT Valuation Tool is integrated on many major NFT marketplaces like OpenSea, Rarible and SuperRare, making it simpler and faster to assess the value of an NFT.
Top 5 potential NFTFi projects
Wing Finance ($WING)
Wings Finance is a cross-chain decentralized lending platform that supports cross-chain interactions between a variety of DeFi products. Combined with the Wing DAO (decentralized autonomous organization), the platform’s decentralized governance model and risk control mechanism aim to foster mutually beneficial relationships between borrowers, creditors, and guarantors. In addition, Wing offers an innovative credit evaluation module that rewards users for developing good credit on the blockchain.
Wings Finance recently launched NFT Pools that allows users to mortgage NFTs of today’s top collection such as BAYC, Cryptopunks, MAYC, and Azuki to receive a loan of “$ETH, $pWING”, then they can participate in other profit-seeking activities on DeFi.
BendDAO ($BEND)
BenDAO is the first decentralized peer-to-pool liquidity protocol for non-fungible tokens. NFT owners can deposit their assets on BendDAO in the form of collateral and borrow loans in ETH. The BendDAO crypto protocol supports instant loans backed by NFT collateral, NFT down payments, and collateral listing. The flexibility for using the services of listing, down payment, and borrowing helps in offering a one-stop solution for NFT liquidity to users within a closed loop.
According to data from Dune Analytics, BendDAO’s current reserve assets have been continuously increasing since mid-January, currently reaching more than 95,000 $ETH. Governance token $BEND is trading at $0.03 (73.4% down from ATH $0.113). However, with a market cap of $18.2M for an NFT platform that owns more than $238M TVL, $BEND token seems to be undervalued.
JPEG’d ($JPEG1)
JPEG’d is a decentralized lending protocol on the Ethereum blockchain that enables non-fungible token (NFT) holders to open collateralized debt positions (CDPs) using their NFTs as collateral. Users mint PUSd (the native stablecoin of the protocol) or pETH (the native Ethereum derivative of the protocol) enabling them to effectively obtain leverage on their NFTs.
Like Wings Finance, JPEG’d also supports most of today’s hot NFT collections and offers users a mortgage loan based on the rarity and value of the NFTs. With a market cap of around $28.2M, $JPEG experienced a 4x rally from the bottom and is moving sideways at $0.0014 with a trading volume of $2-3M per day.
X2Y2 ($X2Y2)
X2Y2.io is an NFT marketplace with the goal to build a truly decentralized NFT market and give it back to the community. The project development team has always been active in researching the NFT market, which is reflected in the variety of NFT collections available on this marketplace. With trading volume reaching over $110M in 7D, ranked #3 on DappRadar just behind OpenSea and Blur, X2Y2’s business model proved to be extremely effective and brought great profits for the project.
LooksRare ($LOOKS)
LooksRare is one of the many non-fungible token (NFT) marketplaces that run on the Ethereum blockchain. LooksRare bills itself as a platform “by NFT people, for NFT people” and uses reward mechanisms and special listing options to lure users from competitors.
It offers free LOOKS tokens for engagement, and the LooksRare team continues to roll out features meant to enhance the NFT trading experience. LooksRare has yet to match OpenSea’s market capitalization but it has attracted a lot of attention for its emphasis on community and its unique engagement incentives.