This time is different: when DeFi meets NFT


With the rapid rise of decentralized finance and irreplaceable tokens, it is easy to believe that crypto applications have finally broken through. But is there really real user growth, or is it just the same influencers moving from one hyped market to another? We try to answer this puzzle and determine what it means for the future of innovation. So, let’s take a closer look at the growth of DeFi and NFT.

DeFi can be said to be the most popular application of smart contracts today. Automated Market Maker, Algorithmic stablecoins and Yield agriculture Strategy is a topic in the town. This frenzy started from the beginning of 2020 to the end of the year, and the media referred to this period as the “DeFi Summer.” Subsequently, SushiSwap conducted a liquidity mining attack, Yearn.finance instantiated the first “revenue farm”, and Uniswap implemented a retrospective airdrop.

Related: The DeFi boom in 2020: the best, worst, and most suspicious projects in the crypto space

We have seen the strongest community formed around the ownership of protocol tokens, creating a positive feedback loop, and increasing the valuation of DeFi assets.

Popular by current iconic characters Cryptopunk, NFT’s share of Ethereum network activities is increasing. With fast-paced development, NFT now spans a series of active market segments, such as avatar-based projects, on-chain generated art, sports collectibles, virtual land, and game earning games.In addition, public figures such as Andy Murray And Ashton KutcherTogether with contemporary artists such as Damien Hirst, he has been eager to gain a foothold in the NFT market.

Related: British artist Damien Hirst uses NFT to blur the line between art and money

The growth of NFT applications and the increase in activity on the chain make them difficult to be regarded as emerging asset classes.

NFT and DeFi users

We use our tag system to tell you about wallets that are active in the DeFi and NFT fields. For example, “Legendary NFT Collectors” rank in the top 0.1% of NFT transactions, while “Elite DEX Traders” rank in the top 1% of Decentralized Exchange (DEX) transactions.

Judging from the overlap of users on these labels, NFT collectors and DEX traders are different user groups. It also identifies a new type of user: NFT-DEX advanced users. Currently, there are 23 super users who are both legendary NFT collectors and elite DEX traders. If we consider the distribution of these tags, another trend is obvious: the more active users are in DeFi transactions, the more likely they are to be NFT collectors.

DeFi requires NFT, NFT requires DeFi

Not surprisingly, DeFi has matured to the point where fungibility is no longer sufficient. Asset ownership can become so personal, or optimized to such a granular level, so it makes more sense to switch to NFT. Uniswap v3 is in a leading position, allowing users to customize the price range of liquid positions in the new automated market maker design.

Related: Automated market maker is dead

The world of NFT is also rapidly integrating into DeFi. Under the leadership of agreements such as NFT20 and NFTX, NFT is gaining financial utility by dividing and representing tokens associated with DEX-based liquidity pools. Users can now access digital art collections without having to purchase individual works. The integration of NFT and DeFi is subverting the definition of irreplaceable. What’s next?

Products that combine DeFi and NFT will be the winner

NFT and DeFi seem destined to conflict. Axie Infinity is a typical case study. Axie may be the largest revenue-generating blockchain product, combining scarce NFT-based game earning games with a liquidity pool of in-game items-a true NFT-DeFi hybrid.

Related: Playing money-making games is the catalyst for this market’s bullish period

The network perspective of Ethereum transactions demonstrates Axie’s ability to connect the DeFi and NFT communities. The success of future encryption products will depend on their ability to attract NFT and DeFi users. Based on Ethereum transactions within 7 days, Axie’s mining pool successfully connected the DeFi and NFT subgroups.

The future

The growth of the DeFi and NFT user base shows a preference for long-term innovation in Ethereum and the broader crypto ecosystem. Tokens, applications and products that can attract new and old users in these markets will be rewarded first.

If you agree with the assumption that diversified users increase the flexibility of value, then you might speculate that the market has matured and can enter a stage of strong growth. The numerous use cases of DeFi and NFT prepare cryptocurrencies to support large projects and niche applications. The depth of user growth indicates that, for a long time to come, new value creation in the encryption field will continue to exceed existing companies in the traditional financial and artistic fields.

This article is created by Xiaolong And Paul Harwood.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Xiaolong He is a research analyst of Nansen, a blockchain analysis platform. Yang is an undergraduate student at the London School of Economics. He is an avid reader of economics and a resident expert on decentralized finance in Nansen.

Paul Harwood He is a research analyst of Nansen, a blockchain analysis platform. Paul is a lecturer, consultant and PhD candidate in the South West of England. He specializes in NFT, cryptocurrency and social capital.