The popularity of non-fungible tokens (NFTs) has skyrocketed since 2017 and evolved into one of the most favored concepts in the blockchain ecosystem. Thanks to their actual liquidity and massive future potential, NFTs are attracting more and more players to enter the industry in which any individual can sell any property or become a unique asset holder.
Interestingly, the global market for NFT sales volume grew around 200 times in the first half of 2021, compared with the same period in 2020, achieving a sensational value of $2.5 billion. Thereby, it’s no wonder why numerous ordinary users, investors, and multiple financial players see in the NFT development countless lucrative opportunities and do their best to grab a significant part of a market share.
How the NFT Marketplace Functions
Non-fungible tokens (NFTs) are data units associated with unique digital files. These files can be anything, but more commonly, they’re pieces of art, music, or recordings of live performances.
In response to the tremendous expansion, both individuals and enterprises have started energetically exploring ways to get the most out of the NFT world. On this basis, to effectively interact with each other and have many options at hand, both buyers and sellers find a partnership with a third-party platform to be more feasible in terms of costs, access to a more extensive customer portfolio, and extra services such as marketing, legal, and technical assistance. These platforms utilize blockchain technology to affirm the origin of digital content and ensure that the existing asset is not a replication.
By and large, NFT marketplaces are divided into streamlined and augmented platforms. The streamlined marketplaces support a broader spectrum of NFTs, manage both auctions and fixed-price sales, and enable transactions with credit cards and crypto payments in Bitcoin, Ethereum, and other specific tokens.
Augmented marketplaces, in turn, focus on more limited niches and provide multiple supplementary services such as minting (creating the NFT itself), marketing, supervision, pricing suggestions, and others.
How Fintech Institutions Can Make Use of NFTs
NFTs have already had a significant influence on the crypto space. Within the financial context, with enormous transformative as well as fusing potential, NFTs are likely to merge with other blockchain applications to form an entirely new financial infrastructure.
And the first thing that may come to one’s mind regarding NFTs is the interconnection with decentralized finance (DeFi). DeFi is a fast-growing financial system based on blockchain technology designed to remove the control of banks and institutions on money, financial products, and financial services.
Initially, NFTs and DeFi were launched as different applications, but over time, it became clear that NFTs could become a suitable instrument for DeFi.
Despite several challenges to overcome and some aspects to streamline, many experts have already defined the ways fintech players may use tokens in their favor.
NFT as Collateral
One of the most exciting ideas is to use NFTs as collateral to earn interest or get loans. This means that now anyone would be able to supply an NFT representing a piece of art, digital land, or even tokenized real estate as collateral and borrow money against it.
Besides being used as collateral, NFTs can also represent more complex financial products such as insurance, bonds, or options. For example, each insurance contract can be represented as an NFT that can, in turn, be traded on a secondary market.
Another important aspect regarding the use of the NFT-DeFi combination is the concept of fractional ownership. NFTs also allow flexibility for the creation of shares of the NFT. As a result, investors could get the opportunity to own NFT without purchasing the whole unit. However, despite their possible success, the applications of fractional ownership of NFTs in the DeFi space are still at the emerging phase.
New Customers, Revenue Streams, and Partnerships
The most easy-to-accomplish and obvious way to use NFTs in favor of financial institutions is to take part in sales or launch a sweepstake competition where new customers can win an NFT.
Apart from this, NFTs can be used to generate liquidity. Many financial startups launch projects where they offer new services based on NFT trading.
And finally, the NFT boom can push more traditional market players to get on board, resulting in a wide range of beneficial partnerships and new solutions to hit the industry.
Is It Worth Investing in NFTs, and What Are the Risks Involved?
Despite the fact that any investment is a risky operation with multiple factors to take into account, the thrill of riches and the chance for massive profits continue to tease those early adopters who seek new ways to make a fortune.
As for now, since the market is pretty new and all major processes still require rationalization, the best solution for investors is prudence. Indeed, investors may put some money into NFTs, but it should only occupy a small percentage of their portfolios. In this case, it will still be possible to make a profit, but without any tangible damage if something goes wrong.
Moreover, wherever immense sums exist, the threat of fraud is never far behind. Should you lose control of your asset due to a hack, the NFTs are no longer yours.
Indeed, security risks have always been a pain in those industries highly connected with money. And here is another way fintechs may win. With the vast resources at their disposal backed with creative new ideas, fintech players may spawn highly secure solutions requiring multiple authentication forms that almost exclude all forms of fraud.
To Sum It Up
While the non-fungible token is still a developing concept, it has already demonstrated a high potential to get substantial gains for its owners, creating real value for both buyers and sellers. NFTs may be utilized as an independent instrument for multiple operations or as a constituent to merge with other applications within the blockchain ecosystem.
The combination of NFTs and DeFi, for instance, unlocks countless opportunities for fintech innovation, at least in the short term. On this basis, the major question arises: is NFT a good investment in 2022? It can be, but with thorough research and wise strategies.