Ahh, the ever-expanding world of cryptocurrency. I truly love it.
I was continually researching and learning about new parts of the crypto market.
This article documents the differences, similarities and advantages I saw in non-fungible tokens (NFTs) and decentralized finance (DeFi), along with projects that interested me in each sector.
The Difference Between NFT And DeFi
What is a NFT?
According to www.coinmarketcap.com, "A NFT (non-fungible token) is a special cryptographically-generated token that uses blockchain technology to link with a unique digital asset that cannot be replicated."
In other words, they are crypto tokens you can buy that are connected to digital assets like art for instance. Each has a specific value connected to it that cannot be reproduced because they are undeniably proven to be genuine through technology.
Did that sound too technical? For this comparison, the important point is that NFTs can have different degrees of rarity, uniqueness and divisibility. Their ownership and transaction history can be verified on-chain, although that does not by itself establish value or prevent every form of misuse.
It is magical because NFT authenticity is verified by the Blockchain, their ownership rights are preserved with the wonders of decentralization, and they are transferable!
NFTs have a multitude of use cases in the digital world, including digital art, games, collectibles and identity verification.
Some NFT examples include:
Celebrities memorabilia can be made in NFTs to verify the digital items are directly from the stars themselves
If you get a Masters in Science, your university can potentially create a NFT showing irrefutable evidence of your degree and qualifications
An artist decides to create a new line of digital shoes and will release only 100 pairs as NFTs; Buy the first pair and you'll be able to prove they were the first and therefore worth more in value
What is DEFI?
Decentralized finance is a way to operate freely within a financial system without the need for third parties to control financial transactions. It is essentially a movement that is eradicating the traditional slow ways of centralization amongst the traditional monetary systems.
In DeFi, third-party players such as banks can be replaced with smart contracts that execute predefined rules.
Although smart contracts were becoming more capable, some DeFi projects remained unaudited, leaving users exposed to contract and protocol risk. DeFi provided a way to lend, borrow or trade peer to peer without a traditional middleman.
Beyond the DEFI movement, there are DEFI coins too. We will get to some of my favorites later in this article.
NFT and DEFI Similarities
They are both transferable, peer to peer
They both rely on the beautiful blockchain technology
They both, technically offspring from the original, one and only bitcoin
NFT and DEFI Differences
NFTs are digital assets while DEFI is a movement that cuts out the middlemen
DEFI allows you to borrow and lend capital while NFTs only represent digital assets
DeFi projects primarily ran on the Ethereum network and relied heavily on smart contracts
Three Projects in Each Sector
DEFI Favorites:
UNISWAP
Uniswap is a decentralized platform for automated token trading. In 2020 it created a governance token called UNI, which lets holders participate in protocol governance.
AAVE
Aave is a decentralized lending and borrowing protocol with a governance token. Lenders supplied assets to liquidity pools, while AAVE holders could participate in governance. I found that combination of utility and governance interesting at the time.
SYNTHETIX
Synthetix provided price exposure to crypto and non-crypto assets without direct ownership of the underlying asset. I compared the broad-exposure concept loosely with an exchange-traded fund, although the structure and risks were different.
My NFT Favorites:
DECENTRALAND
Decentraland is fascinating to me because it acts as a virtual reality platform owned by its users. Users can buy virtual land, develop on it, experience it, and earn money from It in various ways. Two tokens exist in this decentralized world, MANA and LAND. MANA is a fungible cryptocurrency that can' be held and sold or used to spend in the Decentraland metaverse. MANA can be exchanged for LAND parcels, which are basically NFTs used to record ownership, coordinates, and details within Decentraland.
Wow! Creating inside a virtual reality land with our virtual digital currency. Times are interesting!
CHILIZ
CHZ is the acronym for the leading NFT in sports and entertainment. Fans can purchase and trade these tokens as well as participate in certain outcomes via polls and voting. Ownership of NFTs in this space allows fans to get that much closer to their favorite entertainment source by being able to influence and experience them on a brand new level.
ENJIN
Enjin Network is a gaming platform that allows its users to create websites, message boards, and even virtual stores within itself. ENJ is another cryptocurrency but it allows players to buy, sell, and trade in-game NFTs with real-world value.
The gaming sector was growing, and I saw ENJ's role in backing digital assets as a potentially useful source of demand.
Should You Invest In NFT Or In DEFI?
To NFT or to DEFI? That is the crypto question.
I tell ya, NFTs are really intriguing to me because they allow us to own and verify digital assets with specific scarcities and values. With a built-in BS detector, thanks to the beloved blockchain, you could effortlessly sell an original digital art piece you bought years prior for a heavy chunk of change. No appraiser, no art connoisseur, no nothing.
For short-term gains in 2021-2023, I considered NFTs difficult to assess. Their trend-driven demand and limited mainstream usability made the durability of individual assets uncertain, even though I saw longer-term potential in the underlying technology.
I imagine the future of non-fungible tokens to be a beautifully disturbing one, where, most of the physical world we know now, will become transformed into NFTs. Classical art AND the museum they sit in, artists' creations AND the attributes of themselves, real estate AND the states or even countries they reside in, all digital assets in the cryptoverse/metaverse.
Some NFTs are somewhat of a phenomenon because, for example, Jack Dorsey (Twitter Creator) sold his first tweet as an NFT for 2.9 million! Could it be worth 10 million in 10 years? Maybe to someone...that is a phenomenon I can't comprehend myself, but it is possible.
I saw DeFi as an interesting and practical sector with a durable long-term narrative. It offered an alternative to financial services controlled by centralized institutions.
I also saw DeFi as potentially expanding access to financial services for people outside the traditional banking system, while recognizing that internet access alone did not remove technical, market or protocol risks.
If I had to pick one as a new investment at the time, I would have preferred DeFi projects with solid development teams and a strong track record. I considered their utility easier to assess than the durability of demand for an individual piece of digital art.
This Is Only The Beginning:
Although this only scratched the surface, it covered the main differences I saw between NFT and DeFi investments.
The practical question was whether the investment case looked stronger in scarce digital assets or in decentralized financial infrastructure.
Personally, I'm invested in both the DEFI and the NFT market.
I believed both sectors were still at an early stage of development.