In the last several years, DeFi and NFTs have surely transformed the crypto world. NFTs are a trendy topic these days, and new use cases emerge every day. Within the most popular Blockchain games, NFTs are representations of ownership of stocks and assets such as artworks, collectibles, and in-game assets. These NFTs can contain a great deal of information about the spoken assets.
NFTs have recently emerged as powerful financial tools in the DeFi ecosystem. In the field of finance, NFTs can reflect complex contractual arrangements such as one’s right to withdraw funds from DeFi protocols. We are really thrilled to incorporate the use of NFTs in DeFi as a team dedicated to designing the next generation of DeFi protocol. Instead of ERC20 tokens, future DeFi platforms will use NFTs to verify asset ownership.
Why are these non-fungible tokens (NFTs) being utilized to indicate asset ownership?
Uniswap V3 was one of the first protocols to include NFTs for liquidity positions. Uniswap V2 employs ERC20 tokens for LP holdings, but Uniswap V3 uses Non-Fungible liquidity. One of the outstanding innovations from Uniswap V3 is the upgrade from Fungible Liquidity Pool to Non-Fungible Liquidity Pool. The benefits of these NFT-based liquidity positions are limitless because they offer more customisable possibilities.
Check out why Uniswap chose Non-Fungible Liquidity Pools versus Fungible Liquidity Pools.
The liquidity of Uniswap V2 is uniformly dispersed across an x * y = k price range. Non-fungible liquidity pools allow higher fund usage when Uniswap incorporates concentrated liquidity positions with configurable price ranges. These Non-Fungible Liquidity pools are more configurable and can more effectively represent users’ positions. Because LP positions in Uniswap V3 have more complicated inputs including concentrated liquidity, range orders, and adjustable fees choices, all of this data must be recorded as NFTs.
The difficulties of ERC20 tokens to execute complicated functions for advanced financial instruments is why UniLend chose NFTs for our liquidity pools.
Non-Fungible Liquidity Pools at UniLend
NFTs are used as certificates for shares in UniLend Omnis. On UniLend Omnis, lenders will be given an NFT that represents their right to withdraw funds from the pool. NFTs are better suited to managing higher dimension variables connected with lending and borrowing, such as maturity, interest rate, liquidation, and so on, because of their descriptive character.
UniLend’s NFTs Omnis will hold several data points in an isolated dual asset pool, including token addresses, lending and borrowing balances for digital assets. In Omnis, both lenders and borrowers will receive non-fungible tokens as a representation of their liquidity position. Users’ positions in the pool will be determined by these NFTs, which are transferable if users choose to swap their positions in secondary markets.
In the DOGE-SHIB pool, the above graphic depicts a non-fungible liquidity situation.
These tokenized LP locations can be used to construct a variety of advanced DeFi methods over time. The possibility of establishing a money market for tokenized liquidity positions is enormous.
DeFi is heading toward NFTization, which will see sophisticated financial instruments represented as NFTs. The reason for this is simple: NFTs’ ability to hold extremely complex data allows for greater fund usage and a better user experience.
As NFTs grow more important in DeFi, protocols that leverage non-fungibility pools will give consumers more options for asset allocation and risk reduction.
UniLend aspires to be the foundation upon which future DeFi protocols are constructed. Omnis enables a wide range of applications that were previously unavailable with DeFi. The capacity to utilize leverage to long or short any asset, for example, is only one of the complex trading tactics that Omnis customers may deploy.