How NFTs, DeFi and Web 3.0 are intertwined
While blockchain itself provides the technology constructs to facilitate exchange, personal responsibility and trust in the network, the digitization of value elements is of crucial importance in the digitization of asset tokens. Tokenization transforms the assets and rights to a property into a digital representation or token on a blockchain network.
The distinction between cryptocurrency and token assets is important in understanding the exchange vehicles, valuation models, and fungibility in the various value networks that are emerging and challenging interoperability. These are not just technical challenges, but also business challenges related to fair swaps.
The tokenization of assets can lead to the creation of a business model that promotes fraction of ownership and has the ability to own an instance of a large asset. While discussing asset tokenization in a previous article, I also mentioned the value of an instance economy in democratizing finance, trade, and global access, as well as creating a broader global market on an unprecedented scale.
There are various valuation drivers for digital assets and their fungibility in a blockchain ecosystem. These include: 1) tokens based on crypto economic models determined by supply and demand, as well as the utility of the network; 2) non-fungible tokens or NFTs that have intrinsic value, such as B. Identification, diplomas, and health records – essentially tokens, which are simple evidence of the existence, authenticity, and ownership of digital assets; and 3) fungible tokens that are valued on various bases, such as: B. the total amount of economic activity in the network (cryptocurrency), its benefits (smart contracts and processing of transaction networks), assigned values (stable coins and security tokens), etc.
In this article, I address the complex problem of the hyperbolic and rapid rise of NFTs after a similar meteoric surge in decentralized funding (DeFi) that is generating amazing innovations – with immense promise of democratization, new business models and global marketplaces with global access – . all driven by the basic premise of decentralization and the basic constructs of tokenization and wallets. While NFTs can be characterized as unique cryptographic tokens with some intrinsic value to an owner or market (art, collectibles), the NFT movement points to a larger token revolution that is not only fueling massive innovations and the growth of the But Web 3.0 protocols also tests the determination of the DeFi movement, as well as its ability to overlap and deploy platforms and an exchange vehicle for all token types.
Growth of Web 3.0 Protocols
The first two generations of web protocols were mostly about disseminating information and connecting people. They have sparked massive growth in information and collaboration, and have done wonders to connect the world. However, these web logs were never designed to move valuable things around. As the Web 2.0 era reached its full potential, vulnerabilities such as “fake news” and “batch relay” of the movement of assets through a number of intermediaries also emerged. Threats to the system’s commercial and financial infrastructure can destabilize it.
Web 3.0 promises to protect all the things we value: information, truth, and digital assets – both fungible and non-fungible. While Web 2.0 was driven by the advent of social media, mobile and cloud, Web 3.0 is largely based on three new levels of technological innovation: edge computing, decentralized data networks and artificial intelligence.
The growth of NFTs has not only enabled the ability of artists, professionals and entrepreneurs to summarize innovation in a symbolized form, it has also pushed the democratization of the platform as one of the promises of blockchain technology. The underlying infrastructure includes decentralized storage technologies, efficient consensus protocols, off-chain computing and Oracle networks to provide connectivity and validation for existing systems.
Overall, Web 3.0 technologies envision a networked, trustworthy, and accountable network to efficiently deliver value and thus create an infrastructure for valuable things. NFTs represent both transferable units and non-transferable tokens, which we value. The latter include things like our ID, medical records and passports, things that represent us and allow us to participate in the digital economy with our own unique digital identity.
As we dare to envision a shift towards a world of decentralized control, a governance based on distributed technology that challenges any business model, and a governance structure based on centralized business frameworks, we need to think about a few things. Not just the shift itself, but also the motivational, incentive and monetization elements that fuel and drive the economic infrastructure to move things that have value – and thus to keep pace with our changed perception and the subsequent realization of this value.
Overlap with finance – DeFi
DeFi is the movement in blockchain applications that uses decentralized network technology to disrupt and enforce the conversion of legacy financial products into trustworthy, transparent protocols and enable digital value creation and dissemination with few to no intermediaries. It is well known and recognized that due to new synergies and joint creation through new digital interactions and value exchange mechanisms, blockchain technology forms the basis of a trustworthy digital transaction network that, as a disintermediate platform, drives the growth of marketplaces and secondary markets.
While DeFi aims to deliver on the promise of democratizing finance, NFTs test DeFi’s determination by offering a competitive yet comprehensive asset class, as well as opportunities to provide a medium of exchange, fungibility through other fungible asset classes, and liquidity for a traditionally illiquid market provide.
Asset classes resulting from DeFi protocols and NFTs take advantage of ownership of the assets, blurring the boundaries between asset classes and using constructs such as digital wallets as receptacles for them. All of this is supported by the underlying layers of Web 3.0, which provide security and availability through decentralization, and trust and immutability through consensus, and extend these principles to basic computing infrastructures such as storage and interconnect.
The commercialization of Web 3.0 protocols that manifest as fungible utility tokens is blurring the lines with various financial innovation products (such as basic assets and derivatives) introduced by DeFi, also labeled as tokens. While decentralization is the underlying theme – and the wallet and token are fundamental constructs – these blurring lines are pretty profound.
This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk, and readers should do their own research in making their decision.
The views, thoughts, and opinions expressed herein are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Nitin Gaur is the founder and director of IBM Digital Asset Labs, where he develops industry standards and use cases and works to make blockchain a reality for the company. Previously, he was the chief technology officer of IBM World Wire, as well as IBM Mobile Payments and Enterprise Mobile Solutions, and founded IBM Blockchain Labs, where he led the company’s blockchain practice. Nitin is also an IBM Distinguished Engineer and an IBM Master Inventor with an extensive patent portfolio. He also acts as research and portfolio manager for Portal Asset Management, a multi-manager fund specializing in digital assets and DeFi investment strategies.