Defi + NFT’s = Magic Internet Money
Why are we talking about Defi and NFT’s? DeFi still has a ways to go to ensure more safety, and NFT’s are maturing just the same. This whole industry is just magic internet money, right?
Like our new lambo we’ve had our eye on, we’re not quite there yet…
With the recent collapse of Luna, and the implosions of other top Defi platforms, such as Celsius, Babel and even tradefi, there are some very large concerns in the market that could be spilling over into NFTs. What to potentially look out for and how to approach the NFT/Defi combo ~safely~ because if you don’t hold em, you don’t own em.
Let’s dive in.
The same reason you can’t buy that lambo just yet, is the same reason that Defi lending platforms are going under. The up only season doesn’t last forever, and the very generous gainz come to an end eventually, or at least are suppressed. This goes for top lending platforms as well. Even in an industry of daily 10x potentials, some things are still too good to be true.
To The Moon
Let’s start with $LUNA, a $40 Billion market cap coin as of May 6th, now worth almost nothing. Without going too much into the “depegging” of the UST dollar token backed by the deflationary token $LUNA, a large whale (conspiracy theories call for multiple whales) was able to arbitrage their algorithm causing a cascade effect of selling. The Luna Foundation Guard tried to keep the price propped up by selling $BTC reserves, which also spooked the market as well, further adding fuel to the fire.
Following The Lead
Other large exchanges and protocols have now come out with some form of hold, or pause of deposits and withdraws, which is concerning to say the least. This isn’t unfamiliar to the space, Coinbase did it in 2017’s December $BTC peak, infuriating and trapping sellers.
Pause.. Celsius, A defi lending platform, where users can deposit their crypto and get a 10x better yield than a bank savings rate, have paused all withdrawals on their platform too. Leaving your money and tokens stuck until they release them. Ouch. Seemingly close to insolvency, things could get worse. I hope you don’t have funds on there.. Another crypto lending platform in Hong Kong, Babel, is also freezing withdrawals, and rumors have spread about Tradefi doing the same. This poses a great risk for other protocols that thrived in 2020-2021 during defi summer and the bull run. The spoils we had during those times caused conservative trading to seemingly be thrown out the window.
Creating a very fearful marketplace to say the least. The parallel with NFT’s is where does your yield or return come from? Riddle me this.
Lending platforms, staking and OTC services that take control or ownership of your NFT all need to be assessed and how much risk you allow them to hold can be cited to the concerns of the exchanges already mentioned, remember the saying; not your keys - not your crypto.
A peer-to-peer loan platform and collateralization platform for your NFT’s. The DeFi component here is more of an OTC lending platform, you send funds or an NFT to an escrow account that represents a smart contract for a loan you are making or receiving. You can earn interest on this money loaned out with much less downside risk if the market stays favorable. More risk than holding in stables, but nil risk of getting hacked.
Defi Pirates/Chest Finance
On the flip side of a native token, owning a DeFi Pirate NFT represents staking pools with highlighted returns, users deposit funds with the promise of yield over an annualized basis in the same currency/token as deposited.
Ranging from 22% yield to 66.64%. On the risk side, it is very similar to Celsius, and other lenders, where you give your “coin” to Chest finance in the trust that they will get this yield for you and keep your money or crypto safe. One of the pools that is seen above for staking, “cash booster” run by Cashio, was hacked early this year. Not directly related to Defi Pirates, but the way protocols lend out funds, Defi Pirate investors were at potential risk. I repeat, Defi Pirates WAS NOT affected, but they very well could have been.
Where this becomes important, is the fact that if DeFi Pirates investment had been hacked in the Cashio dilemma, those funds would’ve been gone for good. An escrow account per say, that represents collateral DeFi pirates might have access to a loan through might be a solid safety net for a project like this.
Broccoli DAO, Xin Dragons & Time Pixies
Not to be biased, but non custodial staking is a necessity for the space, allowing owners of NFT’s to keep the NFT in their wallet while still earning the passive income each project creates. This also allows extra earning potential on your asset. Double-dipping so to speak.
The safety that this provides on top of the utility of the NFT is unparalleled and can lead to further growth that all NFT’s can provide. Keep an eye out for this over the next few months as it matures.
For the short term woes we’re facing, having a small bag in stablecoin to earn yield is just like investing in $SOL or even $LUNA… you NEVER want to be overinvested in anything no matter how promising it seems. Keep an eye out and remember, if it’s too good to be true, it probably is, even in crypto and NFT’s.