-KSwap Community Member
Translated by Chaos
The progress of modern society has always evolved in upheaval or even denial, and this is especially true for the development of crypto currency. The rise of the decentralized trading model (DeFi) in 2020 caused a lot of buzz in the market. It was thought that in the world of crypto currencies the old and the new were interchangable so fast that people thought DeFi was just a game that joiners played on a whim.
But a highly free market like virtual currencies is so magical that DeFi’s innovative power has injected strong vitality into it and successfully promoted to the mainstream: the Ethereum public chain is the leader; the Binance eco-chain follows; the OKExChain has sharpened its sword for ten years and is ready to be sheathed. Each DeFi mainstream exchange has already become the trendsetter of the times.
Until another long-silent “new thing”, NFT, came out and attracted the attention of the crypto currency world. As mentioned at the beginning, the wheel of progress is always cast in alteration or even total negation.
So will NFT be a flash in the pan or will it become another king in the virtual currency world, or something else?
Is NFT just a passing thrill for people to chase, even disdained by extreme naysayers, or will it become a new emperor like Bitcoin?
Or will NFT and DeFi create some kind of chemical reaction, giving birth to a new model or future paradigm?
Wow, a trifecta of questions. Before we explore these questions, let’s take a brief look at DeFi and NFT.
Decentralized Finance, as the name implies, is the antithesis of centralized exchanges, and DeFi’s ambitious goal is to achieve a smooth flow of assets between anonymous users, without intermediaries, with efficient delivery and a trust-less trading network. This goal is being achieved with the help of blockchain technology and web 3.0 developments that enable programmers to deploy decentralized finance applications on the public chain efficiently, which establishes the flow of markets through smart contracts.
Well-known DeFi exchanges such as Uniswap and PancakeSwap are approaching or even catching up with the mainstream exchanges in terms of daily active trading volume.
Upheaval is due?
Non-Fungible Token, directly translated, is a non-homogenized token. It can be understood as an irreplaceable crypto token. How to understand it, let’s take a reverse example: US dollar can be understood as a homogenized token, we can exchange ten $1 notes for one $10 note. Individuals can each have the same denomination of dollars between them. Conversely, NFT can be unique.
More importantly, the scarcity quality of NFT can bring about a wide range of usage scenarios. NFT can successfully rivet real-world assets to the blockchain, bringing unlimited imagination to its applications.
NFT has the characteristics of a riveting asset because it has the fundamental property of value consensus. After all, the reason why Bitcoin and gold are favored is because of social consensus: people believe what they believe, and that generates the value.
In addition to value consensus, NFT also has a triadic value-added system that cannot be possessed by general crypto currencies simultaneously: scarcity, uniqueness, and proof of ownership. This system basically establishes the value of NFT’s upward path, while its three attached characteristics represent the cornerstone of NFT’s value stability: indivisibility, indestruction and verification.
A new business model?
People can always find a use case for NFT applications. For example, the traditional application lies in artists creating digital art and videos to be auctioned in the NFT marketplace. Another example is when people have the whim to link wildlife conservation with NFT (note: refer to the literature for more details), where blockchain players can mint NFT tokens to claim ownership of a wild animal, and the fees generated from the transactions will be used for animal conservation, etc. Or players can buy and sell land, build houses in the virtual world, and mint NFTs to gain ownership of these digital assets, tradable in a free market. More business theories and concepts are gradually coming to fruition.
The DeFi + NFT value model
Let’s go back to the third question at the beginning, what exactly is the interaction between DeFi and NFT? And is DeFi just a place for NFT to circulate? Or can we build a new model？ Don’t forget that NFT was created to provide the world with a new business model.
A new model seems to be in the making. Remember the KSwap decentralized finance introduced earlier? I recently participated in KSwap’s NFT testing activities, and from the game and play vaguely I feel a kind of NFT + DeFi symbiotic model system (I will not repeat the specific play rules. Official documentations and many test articles are very detailed, if interested you can go and check out).
An illustration of the value model
A DeFi-NFT value model based on the symbiotic paradigm
The pure DEX (decentralized exchange) is not uncommon and uniquely zero in on its core functionality. However, with the addition of NFT elements DEX can show unprecedented dynamism and new value recognition.
General use scenarios
Users exchange currencies on exchanges, or do liquidity mining or coin deposit mining. The use scenarios are extremely limited. The utilites of native tokens of the platform are largely constrained.