How NFTs Fit Into DeFi

However, interesting non-fungible tokens (NFTs) can be like new technologies. One of those psychic powers within the crypto space is that they are not considered regulatory securities. This frees markets such as OpenSea from the burden of becoming a registered broker. Missing obstacles are certainly an important structural factor underlying the current NFT madness.
But funding is very serious, especially in cryptocurrencies. I wrote about NFTs that are valuable at the design level by adding dividends and management rights. This article is an excerpt from The Node, a daily summary of CoinDesk’s largest blockchain story and crypto news. At the same time, unlike the structure of cryptocurrency tokens, the underlying code makes it easy to integrate even a simple image NFT into a more complex financial product. The most valuable NFTs are already split into “splits” or more affordable pieces for sale to investors. This process is overseen by the US Securities and Exchange Commission.
Theoretically, it can also be used as collateral for decentralized financial loans and other commodities, but there are technical issues. As with regular loans, you need to know the fixed price to use an NFT as a loan, but the NFT market is currently very volatile. How grateful are you for a truly unique object, digital or not?
“With a single capital market, it’s very difficult to create this kind of price discovery and transparency,” said the German regulated DeFi protocol, which focuses on tokenized stocks in addition to cryptography. Says Philipp Pieper, co-founder of Swarm Markets.
This problem can be solved by NFTs published in large series such as CryptoPunks (I wrote earlier about the advantages of other markets in the series NFTs). From thousands of series, Pieper suggests that some acne (or lions and monkeys) can be used as a price oracle for the rest of the assets.
“You can create NFT baskets for ETH pairs in a liquidity pool,” explains Pieper. “That is, we have a total basket of market value, which unleashes the entire price discovery problem.”

Of course, CryptoPunks is a good example of the challenge to this idea. There can be a big difference between the lowest and highest prices for items in the series. Punk has recently been sold at low prices ranging from $ 100,000 to millions of dollars.
Pieper states that this probably means that algorithmic rebalancing may be required for the NFT Oracle Group. “Maybe something will change and one of the punks will increase its value by a factor of 10. So to get a value of 10x, you need to be able to extract it. Therefore, it is unfair to get the other 999 at an average price. ”

It’s not much different from how index funds and other mainstream financial instruments are managed, and Swarm says he’s tackling the problem.
According to Pieper, technology is virtually there, but there’s a lot to know about pricing and economics.

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