The market for NFTs has exploded in the last 12 months, with more than $2 billion being spent during the first quarter of 2021. While sales, interest, and awareness of NFTs (non-fungible tokens) are booming, there are some problems looming over the horizon. Firstly, NFTs are subject to high fees, long wait times, and unpredictable network fluctuations. Platforms such as Binance are seeking to address the high cost of minting, trading, and selling however, this is only half of the story.
The thing which makes NFTs so interesting is their scarcity. However, it is also this inherent scarcity that could begin to cause liquidity issues among many NFT assets. Simply put, it’s not easy to bring liquidity, or create a market for an asset that is itself totally unique.
The sandbox effect
NFTs are exclusive – that’s the point. Their scarcity and uniqueness have been a big reason behind their massive growth. However, the lack of liquidity this creates could start to see NFTs remain within their own unique niche; as opposed to the widespread, cross-chain adoption of fungible tokens. And this is a great shame.
Fractional NFTs (where an NFT is broken down into fractions that can be bought) creates a partial solution. There are a few developers doing some really interesting things within this space however, by splitting an NFT into smaller parts, you are simply further diluting liquidity for a great many NFTs and artists. What’s more, these are still fixed within the NFT ecosystem.
What would truly begin to solve this liquidity, and therefore scale issue would be the ability to provide cross-chain integration to the NFT space.
Bridging the NFT and DeFi ecosystems
What if an NFT, with its proven scarcity and speculative value intact, could behave like an ERC20 token? This is effectively what a solution would need to look like, in order to scale NFTs cross-chain; and offer true utility.
There are a limited number of projects looking into this space right now however, Pandora Finance seems to be heading into the lead with what they are calling PiNFT. It is essentially a new hybrid standard, which has the functionality of both fungible and non-fungible tokens. It works by wrapping selected NFT works, collections, or pieces around something with intrinsic value; such as DAI. This can then be traded on Uniswap, Maker, and AAVE – effectively enabling cross-chain trade on a huge number of platforms very easily.
Sounds complex? The reality is actually quite simple. PiNFT creates a wrapper around, for example, an artist’s new collection; with each individual piece/NFT given an intrinsic value in a given stablecoin. The creator can then trade this wrapped token on Uniswap; owning its liquidity pool.
What are the use cases for this cross-chain NFT liquidity gateway?
Artists and creators have the ability to own their own liquidity pools, representing the value of the pieces contained within the PiNFT. The more their NFT is traded, the more value is created. What’s more, for every trade of this wrapped NFT, transaction fees will go to the artist liquidity pool.
What might be an even more interesting application of this technology would be the tokenization of real-world assets. This broadens the scope to the entire artist and creator world; including museums and galleries. By tokenizing a real-world asset/assets such as a new exhibition, or new collection, artists, galleries and museums gain an enormous new marketplace within the NFT space; but also access to exchanges through the cross-chain capabilities this technology presents
There is an opportunity here to provide significant scale to the NFT ecosystem by creating cross-chain liquidity. Projects such as Pandora’s could open the door to the massive adaptation of NFTs within the wider DeFi space – allowing this asset class to finally break out of the sandbox. What’s more, the applications stemming from this ability to trade real-world assets cross-chain are particularly exciting.
It’s safe to say that this space will be one of the ones to watch over the coming months.
Also, join us on Telegram to receive free trading signals.
Find out more about the blockchain and crypto space on the Altcoin Buzz YouTube channel.