NFTs are more than just JPGs - they're the future of DeFi

NFTs are more than just JPGs - they're the future of DeFi

Non-fungible tokens (NFTs) might be recognized by most for their use case supporting digital art & collectibles, but their true potential lies in their ability to exist as transferrable digital certificates of authenticity.

So much so, that just about any unique financial asset that would benefit from a more liquid market, provenance tracking, and simplified transactions may become tokenized as an NFT in the future.

Minting, buying, and selling easily reproducible images does not define the maximum potential for NFTs, but, combined with the power of decentralized finance (DeFi), NFTs will have the capacity to transform the global prospects for real estate, commodities, derivatives and more. 

Seem a little out of scope? This is exactly what the work of Radix sets out to enable.

On December 8 at RadFi2022, Radix will unveil how 9 years of work is about to radically transform the future of finance and crypto. Get your free tickets to the live-streamed event here.

NFTs Are Transforming Real Estate and Luxury Commodities

On June 9, 2021, one of the first real estate sales was tokenized and sold as an NFT. Countering the often months-long process of buying a home, ownership of the NFT (and property) was transferred in 22 minutes to the new homebuyer. The deal leveraged a unique solution that automated the legal framework, KYC (know your customer) procedures, and ownership transfer plan. 

While anyone can go the traditional route of buying a home, many younger people wealthy enough to buy don’t because of the over-complication, but automating and securing transaction processes by tokenizing real estate on a distributed ledger simplified home-buying enough to make the buyer more comfortable with taking a more modern approach to the process.

From crude oil to grain, many commodities often tend to be fungible — but some luxury assets produced en masse derive value from unique characteristics that slightly differentiate one from the other.

Take wine for example, many factors (including age, terroir, type of cask and more) can determine the product’s value, making transaction processes and transfers of ownership often lengthy & fractured. In 2019, EY helped WiV Technology build an investment platform to facilitate the trading of bottles and cases of wine as NFTs, enabling the low-liquidity assets to gain from being brought on-ledger and leverage the same benefits reaped by NFT real estate sales. 

Similarly, luxury assets like classic cars, jewelry and designer clothing could all benefit from the provenance tracking, increased liquidity, and easier transaction experience that would be facilitated by an NFT market. This would be an interesting expansion at the cross-section of luxury culture and DeFi, but crucially, at a market valuation of $4 trillion, NFTs would also find serious utility in tokenizing derivative contracts for the commodities market — not to mention, the derivatives market as a whole.

So Why Haven’t We Seen a Major Impact?

The biggest challenges facing NFT adoption are safety and scalability, with most NFTs currently existing on Ethereum and Solana. While Ethereum gas is relatively expensive and building financial smart contracts on Solidity is complex, Solana has trouble running a blockchain without interruptions. With these growing pains in mind, onboarding countless industries and a $600 trillion derivatives market onto either of these two blockchains would be nonsensical. 

If a simple Ethereum transfer costs roughly $3.00 and NFT sale costs roughly $6.00 in the current market (when prices are low), paying for the transaction and premium of a tokenized options contract would make the price of DeFi on Ethereum simply unappealing. 

Outside of price, consumers and builders should be more concerned with the DeFi hacks and exploits that plague Ethereum and many other blockchains with generalized application layers.

If the launch of a single NFT collection could halt Solana block production, what will $600 trillion of complex financial activity do? A modern financial system that is more expensive, prone to exploits, or less reliable will simply never succeed.

Radix: The Distributed Ledger Built for Mainstream Finance 

If DeFi is the future of finance, the distributed ledger that is needed must be built with the explicit purpose of handling the world’s financial assets safely and securely. 

Ethereum was a good starting point — the one-blockchain-for-all-purposes approach taught us valuable lessons and revealed the limits of a ledger that was designed to support everything but failed to focus on one important thing: the safe management of assets. 

The Ethereum Virtual Machine’s flexibility in handling almost any type of application has ultimately had the opposite effect of what it was intended to do, as developers routinely spend the majority of their time securing applications versus building a great product. The logic that defines and manages assets is an imperative yet avoidable responsibility of a Solidity developer, even the slightest mistake in the precise ordering of some Solidity code can have disastrous results. 

The Radix Engine changes this. In contrast to developing on Solidity, by coding DeFi applications in Radix’s programming language — Scrypto — developers will no longer lose sleep over designing logic to keep an asset safe from hacks and exploits. Instead, they can focus on creating a powerful application while the Radix Engine takes care of the “physics” of how a token should behave. Depending on the app they’re building, this can save developers hundreds, even thousands of lines of code (and likely hours), making Scrypto and Radix serious game-changers in a so-far struggling space.

A great example of Radix’s simplicity is when Scrypto was used to build a decentralized exchange (DEX) like Uniswap. Creating this on Solidity can take a couple thousand lines of code, yet in a  Scrypto coding competition, a Radix community member created a DEX in a few hundred lines of code

A dApp like Uniswap goes from 750+ lines in Solidity to ~180 in Scrypto for equivalent functionality.

When developers don’t have to worry about how an asset should behave, it becomes much simpler to create powerful applications. After years of DeFi and crypto struggling to break into the mass market, the Radix Engine and Scrypto will finally allow builders to securely and efficiently create the next step of global finance.

What’s Next For NFTs?

From simplifying home-buying to integrating wine investments into more liquid markets, financial NFTs have proven utility, though they are currently being built on flawed networks. As the current market swallows short-lived projects, the real builders and DeFi pioneers will look past Ethereum and Solana for the most efficient, safe, and scalable ledger to support the future of finance. 

With Scrypto, developers will stay DRY while the system-level constraints of the Radix Engine keep the laws of digitized financial assets intact. When TradFi actors migrate to the DeFi landscape, they may be tempted by the clout that comes with building on an earlier network, but will ultimately find more reasons to build on an efficient, globally scalable, decentralized ledger with an asset-oriented approach to finance, like Radix.

Want to find out how the future of finance is about to radically change? Get your free ticket to RadFi2022 here to join thousands of others ready for better DeFi.

 

Image sourced from Shutterstock

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Posted In: DeFiNFTsRadixEmerging MarketsMarkets