<p>Given the recent eruptions in both the NFT and DeFi businesses, it was just a matter of time until the two technologies would unavoidably collide. The term <strong>NFTFi</strong> came in with the interest of all NFT and DeFi enthusiasts. So what is <strong>NFTFi</strong> exactly? Let’s find out.</p><h2>What is NFTFi?</h2><p dir="ltr">NFTs are being used by <strong>NFTFi</strong> to fund transactions by gaining access to more liquid assets. This clash of DeFi with NFTs has provided NFT holders with new opportunities by making their NFTs a far more liquid asset. Within <strong>NFTFi</strong>, there are several sectors, and this article will go over what they are, their merits and cons, and the main platforms in each sector.</p><p dir="ltr">DeFi technologies are currently meant to resemble traditional finance. However, the arrival of NFTs opens the door to a whole new set of financial products. Some lending protocols, for example, now enable NFTs to be guaranteed as loan collateral, providing borrowers and lenders with an alternative to the more conventional stablecoin or cryptocurrency-backed loans under DeFi. In any scenario, NFT/DeFi projects leverage each technology's capabilities to create a result that is demonstrably more valuable than the total of its components.</p><p dir="ltr">In practice, the combination of DeFi with NFTs has attracted a growing amount of interest and development work. Overall, it appears that some projects are more focused on enhancing NFTs to fit DeFi approaches. For example, the existence of liquidity pools and fractionalization protocols allows NFT holders to obtain liquidity on their holdings while also allowing investors who are less well-capitalized to obtain exposure to high-value tokens. Other initiatives, on the other hand, appear to concentrate a higher emphasis on improving DeFi primitives through the usage of NFT-based assets.</p><h2>Current NFTFi landscape</h2><p dir="ltr">In each scenario, NFT/DeFi projects make use of the advantages of each technology to provide a final output that is indisputably superior to the sum of its parts. Let's examine a few instances.</p><h3>Fractionalizing</h3><p dir="ltr">The process of distributing possession of an NFT through a series of fungible tokens linked to the original NFT is known as NFT fractionalization.</p><p dir="ltr">The NFT is deposited in a vault to be fractionalized. The NFT is then represented by ERC-20 tokens, each of which symbolizes a part of ownership in the initial NFT. NFT fractionalization enables less well-capitalized investors to gain access to premium NFT collections. Because a costly NFT can be split into shares of its value using fungible tokens, additional liquidity can flow into the market.</p><p dir="ltr">The process of "putting things back together" is a challenge that arises from NFT fractionalization. To remove the entire NFT from the vault, all holders must sell their shares, which means that all fractions must be reassembled.</p><h4>Notable projects</h4><ul><li><p dir="ltr"><strong>Unic.ly:</strong> Users can fractionalize NFT by syncing their wallets, placing their NFTs in a vault, and minting new ERC-20 tokens via Unic.ly (uToken). Unic.ly has its own DEX, UnicsSwap, which is a fork of UniSwap and allows uTokens to be traded. Unic.ly has systems in place to help ensure that uToken pools have adequate liquidity.</p></li><li><p dir="ltr"><strong>Fractional.art:</strong> provides comparable services. The main distinction between the two projects is that Fractional.art does not allow investors to stake to earn yields.</p></li><li><p dir="ltr"><strong>NFTX.io</strong>: an NFT marketplace protocol that allows customers to deposit their NFTs into a vault in order to generate a fungible ERC20 token (vToken). The freshly issued token is a 1:1 claim on any random NFT in the vault.</p></li></ul><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed3a417cb51158a8e6023f659fee92.jpg" alt="Unic.ly" title="Unic.ly" width="600" height="392"></p><p class="prosemirror-p-center"><em>Source: Unic.ly</em></p><h3>Renting</h3><p dir="ltr">The majority of people cannot afford high-profile NFT projects like the BAYC or the Cryptopunks. The floor prices for the collections are 72.5 ETH and 67.5 ETH, respectively, as of the time of writing (August 28). NFT Renting has also been formed as a solution to this issue, albeit in a different, more recognizable manner.</p><p dir="ltr">Renting NFTs gives someone temporary access to an NFT, much like renting a house or a car.</p><p dir="ltr">Renting allows NFT holders to make passive revenue from their NFT collections on their own terms, without having to worry about fractionalization.</p><p dir="ltr">The rental use cases are always expanding. Renting NFTs will gradually have applications at NFT galleries and museums with platforms like Musee Dezentral currently providing this experience. Holders of NFTs that give access privileges can rent out their NFTs to persons who want to attend NFT-gated community events for a set length of time if they are not using them for that reason themselves but want to keep exposure to the NFT.</p><p dir="ltr">There are two types of renting: collateral and under-collateral renting.</p><h4>Collateral Renting</h4><p dir="ltr">An NFT owner offers their property on a rental marketplace for collateral renting. The procedure of renting can then be started by the owner.</p><p dir="ltr">The borrower and lender's mutual agreements are included in a smart contract with the NFT. The rental fee and the collateral, which is valued more than the NFT to safeguard the lender, are among these terms. The NFT and the collateral will be returned to their original owners after the contract expires.</p><p dir="ltr">The mechanism used by borrowing and lending protocols in DeFi is comparable to the practice of overcollateralized renting. The NFT that a potential renter would want to borrow can be obtained by posting collateral with a higher value than the NFT. Borrowers can then access the NFT for the duration defined by the NFT owner and the encrypted smart contract where the NFT is linked.</p><h4>Under-collateralized Renting</h4><p dir="ltr">The main distinction between the two is that under under-collateralized renting, the renter will never get the original NFT.</p><p>Platforms that provide Lenders can use under-collateralized renting to deposit their NFT and create a wrapped version of it. When a user hires an NFT and pays the rental charge, the renter receives the wrapped NFT, which has the same functionality as the original. When the contract expires, the wrapped NFT is destroyed, and the rental cost is paid to the lender. Renting without collateral reduces the risk for both parties because the renter does not need to put up collateral and the lender does not need to rent out their original property.</p><h3>Derivative</h3><p dir="ltr">NFT derivatives are a relatively new concept in the realm of <strong>NFTFi</strong>. NFT derivatives are analogous to non-NFT derivatives. They are tradable contracts that allow people to speculate on the future pricing of NFT collections.</p><p dir="ltr">NFT derivatives significantly improve NFT liquidity. It offers up a lot of options, such as trading high-value NFTs and even employing leverage to trade NFTs. Users can also bet in either position of the NFT's price, either long or short.</p><p dir="ltr">In traditional finance, the derivatives market is far larger than the spot market, with the market valuation of derivatives reported to be worth trillions of dollars. This demonstrates the market growth opportunities of NFT derivatives, particularly when the 11 billion USD NFT market is used as the equal to the spot market.</p><p dir="ltr">However, NFT derivatives, like other derivatives trading, are extremely dangerous, especially when leverage is used, as it can multiply losses. Furthermore, because NFT derivatives trading is in its infancy, few NFT collections are now ready for derivatives trading.</p><h4><strong>Notable projects in this category</strong></h4><ul><li><p dir="ltr"><strong>NFTures:</strong> The most well-known platform for trading NFT derivatives is NFTures, a Synfutures product. The platform is only presently available in early access, and there is only one NFT that can be long or shorted: CryptoPunk, for now.</p></li><li><p dir="ltr"><strong>Fuku:</strong> Another company leading the way in NFT derivatives is Fuku. Instead of restricting trading to specific collections, Fuku will provide the first NFT options trading platform where anybody may buy and write options on any NFT. Fuku now permits customers to write and buy options on more than 2 million collections and 80 million NFTs, broadening the scope of <strong>NFTFi trading</strong> beyond merely blue-chip NFTs.</p></li></ul><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed3a417cb51a3da8e6023f659fee92.jpg" alt="NFTure dashboard" title="NFTure dashboard" width="600" height="291"></p><p class="prosemirror-p-center"><em>NFTure dashboard.</em></p><h3>Lending and borrowing</h3><p dir="ltr"><a href="https://www.builder.news/crypto-insights/nft-lending" alt="NFT lending - A new way for NFT holders to maximize benefits" title="NFT lending - A new way for NFT holders to maximize benefits" target="_blank" rel="" class="">NFT lending</a> adds liquidity to the entire NFT ecosystem. This new business enables NFT lenders to leverage their assets in order to earn yield, which the borrower pays in the form of a borrowing fee. Borrowers may also use loans to finance fresh NFT purchases, allowing them to access more funds without having to sell their NFT.</p><h4>Peer-to-peer lending</h4><p dir="ltr">A developing area of the NFT market is NFT lending. Similar to DeFi lending, NFT lending is frequently made possible on-chain by a smart contract. The assets, liquidity (the loan), and loan terms are all included in the smart contract. Peer-to-peer (P2P) NFT lending platforms link potential borrowers and lenders, establishing a permissionless loan between the parties involved and using NFTs as collateral.</p><h4>Collateral debt position</h4><p dir="ltr">To create a stablecoin, a collateral debt position for NFTs is generated by locking collateral assets in a smart contract. In this situation, the collateral is an NFT, and the CDP is generated by determining a floor price of the collateral NFT, which is then used to establish the loan size.</p><h4>Lending pools</h4><p dir="ltr">Lending pools in NFT money markets function similarly to those in DeFi, where platforms such as Aave and Compound have popularized them. Lending pools employ an over-collateralization strategy. NFTs are posted as collateral by borrowers. This allows them to borrow funds in exchange for a lending fee with a market value smaller than the total value of the collateral. This fee is paid to lenders to encourage them to offer liquidity.</p><h5>Notable lending pool projects</h5><ul><li><p dir="ltr"><strong>NFTfi.com</strong>: NFTfi.com is one of the most well-known NFT loan platforms. Receiving secured wETH and DAI loans enables NFT owners to use NFTs to get the liquidity they require. Through a permissionless smart contract infrastructure, NFT holders and liquidity providers can connect on the peer-to-peer site NFTfi.com.</p></li><li><p dir="ltr"><strong>Arcade</strong>: Another well-known NFT lending platform is Arcade, formerly known as Pawn.fi. Arcade enables users to bundle numerous NFTs into a single loan's collateral, allowing for greater loans than on other platforms. Borrowers on Arcade have more flexibility because loans can be fully repaid at any moment. This sets Arcade apart from NFTfi.com.</p></li><li><p dir="ltr"><strong>UnUniFI</strong>: UnUniFi is an NFT CDP platform with the most versatile Loan-To-Value (LTV) ratio in the industry. UnUniFi offers an internal NFT marketplace where data on NFT price floors is collected. This information is used to determine loan size. UnUniFi offers three stablecoins for issuance and lending.</p></li></ul><p class="prosemirror-p-center"><img src="https://cdn.builder.news/news/11ed3a417cb51ed5a8e6023f659fee92.jpg" alt="UnUniFi" title="UnUniFi" width="600" height="254"></p><p><strong>Bottom lines</strong></p><p dir="ltr"><strong>NFTFi</strong> is developing as one of the most intriguing newer Web3 developments. This industry tackles the liquidity challenge that NFTs experience by exposing them to a wide range of new financial use cases that other asset classes now enjoy. It may be premature to predict that <strong>NFTFi</strong> will set a new trend for market recovery, but we can be confident that the value of <strong>NFTFi</strong> is sustainable and here to stay.</p><div class="pr-block-special"><strong>Disclaimer:</strong><br>This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

The term NFTFi came in with the interest of all NFT and DeFi enthusiasts. So what is NFTFi exactly? Let’s find out.

All you need to know about NFTFi