If a blockchain is a spreadsheet, your wallet would be one row on that spreadsheet, and a single integer would represent your owned tokens. This is cool technology, but it is pretty limited! You can increase and decrease integers for transfers and the like, but that\’s about it. NFTs and, by extension, fNFTs change things significantly because now, in your wallet\’s row on the spreadsheet, you can have all sorts of other data like Links, Clowns, Monkeys, Anime Girls, etc.
So, who cares, right? We\’ve got this new technology, but all it\’s given us is expensive digital trading cards!
Well, that\’s because the most visible fruit of this tech tree is art, but that\’s only because it was the easiest to pluck. NFTs have tremendous potential when designing all kinds of systems. But, here, we are most concerned about their application in financial systems. Of which there are many! Let\’s examine the —
Current Applications of fNFTs
- Uniswap v3 uses NFTs to denote LP positions for more effective liquidity management.
- Yearn\’s Insurance contracts are underwritten by Nexus Mutual and traded as NFTs on Rarible.
- UFiT DAO combines different fungible and non-fungible tokens into \”asset baskets\” that function like indexes.
- Charged Particles combines existing NFTs with interest-bearing ERC20s to create unique financial instruments.
- REVEST allows for personalized locking of ERC20s into fNFTs that can then be traded on secondary markets in bulk.
- Solv Protocol has programmed investment contracts into NFTs for greater transparency into project tokens and transactions.
- Drops allows users to borrow against their traditional NFTs.
As you can see, many applications are already creating new types of financial instruments, enabling greater capital efficiency, and creating functionality that already exists in TradFi but has been sorely missed in DeFi. What\’s important here is that each one of these applications brings something very new or needed to the blockchain\’s financial ecosystem. These assets have real tangible uses when constructing portfolios and making financial decisions.
It does not end here. The tech is still new, and its full capabilities have not been explored; everyone has been too busy trading jpegs! There are many more theoretical use cases for fNFTs, and we will explore a couple.
The Future of fNFTs
Firstly, fNFT marketplaces will bloom by the thousand, much as NFT marketplaces did over the last year. While many existing NFT marketplaces will add functionality, the specific type of data that fNFTs work with will require different kinds of markets. Accurately pricing these assets will be a challenge (kind of like regular NFTs) but will not be impossible.
Tony Y. Chan, the CEO of Pledge Finance, an fNFT marketplace, wrote an interesting article recently for NASDAQ. He asserts that fNFTs will be the path to mass adoption. I\’m skeptical. Barring his apparent vested interest, the claim seems foolish considering the general level of financial literacy in the population. Not to mention widespread crypto illiteracy.
Still, he brings up a new type of fNFT that uses the EIP-3525 standard. Without getting too technical, this standard outlines a new kind of NFT that is \’semi-fungible.\’ This allows for some exciting possibilities going forward. The biggest being stable interest rates.
While stable interest rates are not sexy, they are key to stable economies and smart financial management. When these become widespread the landscape of DeFi will significantly change. They are a smart thing to keep an eye out for!
As a Byte Mason, I would be remiss if I didn\’t mention the Reliquary. This upcoming product will allow users to mint fNFTs that contain their positions in a single-stake vault. The position will accrue additional emissions the longer it is intact and can be traded on secondary markets for a premium.
Soon, everyone in DeFi will be using fNFTs in one way or another whether they are aware of it or not! And while these are not as exciting as billionaire apes or BPD anime ladies, these new assets will fundamentally change DeFi for the better. They currently provide crucial tools for the functioning of any sophisticated economy and soon will provide even more. Expect to see more options, bonds, and indexes in NFT form in the coming months and years!
I\’m very interested in what you think, let\’s talk on Discord or if you prefer, Twitter.