How NFT, DeFi and Web 3.0 complement each other

Although the blockchain itself provides a technical framework that promotes transactions, ownership, and trust in the network, asset tokenization is the general trend in value-linked digitization. Tokenization is the process of converting assets and equity into digital forms or tokens on the blockchain network.

Distinguishing between cryptocurrencies and tokenized assets is important for understanding trading tools, valuation models, and homogeneity across various value networks that are emerging and posing interoperability challenges. This is not only a technical challenge, but also a business challenge surrounding fair trade.

Asset tokenization has given birth to a business model that promotes partial ownership, that is, the ability to own large asset instances.

Due to digital assets and their homogeneity in the blockchain ecosystem, various valuation drivers have been generated. include:

Tokens based on an encrypted economic model driven by supply and demand and network utility;

Non-homogeneous tokens (NFT) have inherent values ​​such as identity authentication, diplomas, and medical records. In essence, these tokens are simple proofs of the existence, authenticity and ownership of digital assets;

Homogeneous tokens that are valued based on various foundations, such as the sum of economic activities in the network (cryptocurrency), its utility (smart contract and transaction network processing), anchor value (stable currency and security tokens), etc.

In this article, I will discuss the rapid rise of NFT after DeFi is popular. NFT has established a new business model with amazing innovation and has a global market. All of this is driven by the basic structure of decentralized tokens and wallets. Although NFT can be described as a kind of cryptocurrency that has some intrinsic value to holders or art, collectibles market, the development of NFT also heralds the arrival of a larger token revolution, which will not only promote Large-scale innovation and development. The Web 3.0 protocol has grown, and DeFi’s solutions have also been tested, as well as its ability to cross all token types and provide platforms and trading tools.

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The growth of the Web 3.0 protocol

The first two generations of network protocols were mainly for spreading information and connecting people. They promoted the tremendous growth of information and collaboration, and created miracles to connect the world. However, these web protocols were never designed to move valuable things. At the same time, with the emergence of the Web 2.0 era, vulnerabilities such as “fake news” and asset movement through a series of intermediaries have emerged. This system poses a threat to the business and financial infrastructure and may make the system unstable.

And Web 3.0 promises to protect all our cherished information, truth and digital assets, including homogenized and non-homogeneous ones. Web 2.0 is driven by social, mobile and cloud technologies, while Web 3.0 is mainly built on three new technological innovation levels, namely edge computing, decentralized data networks and artificial intelligence.

The development of NFT not only gives artists, skilled professionals and entrepreneurs the ability to innovate in the form of tokenization, but also promotes the democratization of the platform, which is also one of the promises of blockchain technology. The underlying infrastructure includes decentralized storage technology, efficient consensus protocols, off-chain computing, and oracle networks to connect and verify existing systems.

In general, Web 3.0 technology envisages a connectable, trust-free, and responsible network that effectively delivers value, thereby creating an infrastructure for valuable things. NFT represents not only a transferable entity, but also a non-transferable token that we evaluate. The latter includes our identity certificates, medical records, passports, etc. These things represent our identity and allow us to participate in the digital economy with our unique digital identity.

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Intersection with finance—DeFi

DeFi is a revolution in the field of blockchain applications. It uses decentralized network technology to promote the transformation of old financial products into trust-free transparent protocols, promote the creation and dissemination of digital value, and hardly require any intermediary. As a result of new synergy and co-creation through the new digital interaction and value exchange mechanism, blockchain technology has laid the foundation for a credible digital transaction network. As a disintermediation platform, it promotes the growth of the market and the secondary market .

Although DeFi’s goal is to democratize finance, NFT tests DeFi’s determination by providing competitive and inclusive asset classes, as well as providing the medium of exchange, the homogeneity of other homogenized asset classes, and the traditional illiquidity. The market provides a way for liquidity.

The asset classes generated by the DeFi protocol and NFT take advantage of the partial ownership of assets, blur the boundaries between asset classes, and use structures like digital wallets as storage for asset classes. And they are all supported by the underlying Web 3.0, which provides security and availability through decentralization, trust and immutability through consensus, and extends these principles to basic computer infrastructure such as storage and interconnection.

The commercialization of the Web 3.0 protocol is manifested as a homogenous utility token, which further blurs the boundaries between various financial innovation products introduced by DeFi, such as basic assets and derivatives, and these products are also tokenized. Therefore, although decentralization is the basic theme, and wallets and tokens are the basic structures, the fuzzy boundaries between them have deep meaning.

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Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.