According to the industry, after a year of exponential expansion, the decentralized finance (DeFi) sector is now undergoing a phase of cooling.
In the first quarter of 2021, DeFi apps took in $15.1 billion in crypto assets for management, representing a 150 percent increase from $20 billion to $50 billion. Over the last year, the dollar value of ETH and other Ethereum-based tokens has risen significantly, but the number of managed crypto assets has not expanded comparably.
Considering this “price impact”, we find that total value locked (TVL) in DeFi increased by 50% throughout the quarter, with a modest decline at the end of March.
Also, following this trend, the volume of trading on decentralized exchanges (DEXs) increased steadily in the first quarter before declining somewhat in the second quarter.
The number of DeFi’s trades almost quadrupled, and the trading values for some markets rose by more than $2 billion as a result. The non-fungible tokens (NFT) sector stole the show with a roughly 25x rise in their price over the course of the year.
NFTs have witnessed an initial flurry of activity this year, but it is too early to tell if the industry will continue to expand in the coming months.
(NFTs) have grabbed the attention of mainstream and financial media over the last three months owing to the novelty of their invention and the fact that large institutional investors have embraced them. Christie’s has set a new auction record by selling an NFT artwork by the artist Mike Winkelmann, nicknamed Beeple, for $69 million, setting a new auction record for the company. On March 16, Sotheby’s, another renowned auction house, stated that it would hold its NFT sale in the near future.
Although there has been much buzz surrounding NFTs, the value of DeFi apps and the level of user engagement have remained steady so far this quarter.
New investors have entered the NFT market, and spending on NFTs has increased dramatically in the first quarter; according to NonFungible.com, which monitors NFT transactions, there were 73,000 buyers and 33,000 sellers in the first quarter. It is possible that this discrepancy has resulted in higher prices as a consequence, according to the website, which also claims that it is a sign of huge interest from newcomers, in addition to an indication that existing owners want to keep their assets, which will create a sense of scarcity.
After briefly discussing the expected rise of NFTs in 2021, lets get down to the meat of the matter: what is it all about?
How do NFTs work?
The non-fungible token is comprised of tokens that are not fungible in any way. “Fungible” is not an extremely frequent term. Therefore it is unlikely to signify anything at this stage in the conversation. However, it merely implies that anything may be substituted for the other item.
In the field of economics, money is an example of a fungible asset. Each unit is readily interchangeable (for example, exchanging a £20 for two £10s) and does not lose or gain value due to the exchange. Furthermore, fungible assets include items such as gold, cryptocurrency, and stocks, among other things.
A fungible asset is anything that may be divided in various ways, and the supply of such assets can be almost limitless. They have a wide range of applications, including payment and value storage, among others.
Non-fungible assets, in contrast to fungible assets, are one-of-a-kind creations of nature, such as a painting, a home, or a trading card. For example, it is permissible to duplicate or photograph an artwork, provided that the copies or photographs do not look exactly like the original.
NFTs are data units that are stored in a blockchain digital ledger. When a non-fungible token is used, it represents the uniqueness of the digital asset by stating that it cannot be substituted for another. Because of the laws of cryptography, the blockchain can not be changed, altered, or duplicated.
A comparison of non-fungible tokens (NFTs) and cryptocurrencies
It is necessary to differentiate between fungible and non-fungible tokens in the cryptocurrency sector. Although both NFTs and blockchains are based on blockchain technology, understanding the essential distinctions between them may aid in understanding how they operate.
The main distinction is that bitcoin is fungible, while NFTs are not. For instance, the trading of Bitcoins for other Bitcoins is an example of this. This, however, is not feasible in the case of an NFT. Due to the fact that it is linked to a specific digital asset, it is not feasible to exchange non-fungible tokens.
The value of NFTs
Non-fungible tokens are, as we’ve previously covered, effectively a digital asset’s certificate of ownership in the digital world. Among other things, the collectibility and prospective selling price of an asset define the asset’s worth in the long run. It is possible to trade and sell NFTs.
When NFTs are utilized in combination with art, they are once again helpful. In February 2021, digital artist Beeple received a whopping $69.3 million for their work Everydays – The First 5000 Days, which was sold via Christie’s auction house.
Here are some examples of NFT sales
Selling well isn’t only confined to NFT art. The following is an example of NFT sales:
- In exchange for his first tweet, Jack Dorsey sold the digital NFT for $2.9 million.
- The “Nyan Cat” GIF was sold for 300 Ethers (a cryptocurrency), worth about $561,000 at the time of the sale.
- The ‘Charlie Bit Me’ video on YouTube has been watched more than 800 million times to date, which was approximately sold for £500,000 as an NFT.
It is possible to store, display, trade, and even mint (produce) NFTs in an NFT marketplace, also known as an NFT exchange. Marketplaces such as these are the non-traditional retailers’ versions of Amazon or eBay.
Marketplaces of this kind may only be accessed and utilized if you possess the following:
- Choose a wallet compatible with the blockchain network that you want to use if you want to purchase NFTs via a cryptocurrency exchange. For example, the MetaMask Ethereum wallet is compatible with the Ethereum blockchain network, allowing you to purchase and trade NFTs. It is necessary to use wallet services, such as Sollet, to sell NFTs on the Solana platform.
- Before purchasing, listing, or minting an NFT, you must have sufficient money in your wallet. It is necessary to double-check that the cryptocurrency you want to use is supported by the platform you intend to utilize.
- To purchase NFTs, you must first register for an account on the particular marketplace.
It is common practice to charge a blockchain network fee to list and create NFTs on marketplace platforms. Each blockchain-based system levies a separate price for its services. Ethereum is an example of a decentralized application environment that is worth mentioning.
How Stablecoins are becoming the Base Currency for NFT Marketplaces
According to a recent study from Bitstamp and CoinMetrics, stablecoins have been in the works for quite some time. Before the development of Bitcoin, individuals searched for digital money that was both controlled and viable. When you consider the history of stablecoins, it is surprising to see them take off in such a big way. After gradually rising to 6 billion over the previous five years, stablecoins hit 7 billion in December. In less than four months, it had grown to 12 billion. It only took four months for it to reach that level, which was a remarkable achievement.
Stablecoins are probably becoming more popular in the marketplace due to the crypto crisis that occurred in March of 2020, coupled with the economic collapse resulting from the COVID-19 epidemic in the United States markets. Cryptocurrency trading, cryptocurrency assets, and investment are all possible applications.
Stablecoins are rapidly becoming the favored payment currency on the many NFT markets and shops. NFT customers may use these price-stabilized digital currencies as a source of financing.
During the last few years, stablecoins have grown in popularity due to their potential to provide a viable alternative to the volatility associated with conventional cryptocurrencies. Despite the volatility that makes such digital currencies attractive to speculators and investors, consumers looking to use them to buy goods and services find them less enticing than before.
NFTs have proved to be appealing because of the stability they provide, which has, in turn, contributed to the fast development of stablecoins since there is a massive demand for them on NFTs Marketplaces. Moreover, a slew of NFT platforms has sprung up to enable transactions using stablecoins since that is the most trustworthy cryptocurrency for most users.
Several NFT Marketplaces offer a dual interface for purchasing and selling NFTS on stablecoins. They also incentivize users to use stablecoins for transactions.
Following the Bitcoin collapse and other market occurrences, people became more aware of the volatile nature of the cryptocurrency market. Because of the high level of volatility in cryptocurrencies, many people choose stablecoins over cryptocurrencies in general.
Consumers are more concerned about stability than they are with anything else, and stablecoins offer that assurance for its customers when it comes to cryptocurrency. In this case, stablecoins are a prominent option for NFT markets to utilize as their foundation currency since they provide people with a feeling of security because they are so stable compared to other digital currencies such as bitcoin. As a result, stablecoins are gaining popularity among the general public, especially among NFT markets (such as Dapper Labs), using them as the base currency for their ecosystem.