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Investors have a variety of ways to employ cryptocurrency, thanks to decentralised finance and non-fungible tokens. Before making an investment, consider the following.
In addition to directly holding Bitcoin, Ethereum, and other digital currencies, investors now have a variety of options as the cryptosphere continues to grow.
You may be aware of the recent growth of mutual funds and exchange-traded funds (ETFs) for cryptocurrencies in Nigeria. Non-Fungible Tokens (NFTs) and Decentralised Finance are two expanding segments of the crypto market where investors are looking for investment opportunities. It presents a radically different method for using cryptocurrency. Let’s examine NFTs vs. DeFi, which is a better investment in more detail.
What is an NFT?
Non-Fungible Tokens (NFTs) are distinctive digital tokens that serve as evidence of the legitimacy and ownership of both tangible and intangible assets. This can be in the form of music, art, photography, videos, or simply tweets. Anything with monetary value can be transformed into a digital asset. Additionally, NFTs can be “divided,” enabling numerous persons to buy a single piece of hers.
Non-fungible refers to the fact that, unlike officially recognized money and fungible assets like Bitcoin, the token cannot be exchanged. NFTs may be purchased and sold, though, just like any other digital asset, and there is a thriving secondary market for these assets. OpenSea, Rarible, and LooksRare are three popular NFT marketplaces.
When a digital collage of NFT created by artist Beeple sold for an astounding $69 million (all amounts are in US dollars unless otherwise specified) in March 2021, the world first became aware of NFTs. Since then, digital works and artifacts in the fields of music, art, movies, sports, real estate, and other fields have grown into a multi-billion dollar market thanks to collectors. It shouldn’t be shocking that the global NFT industry is predicted to reach $80 billion by 2025.
DappRadar reports that the NFT market is expanding significantly year over year, with transaction volume expected to reach $25 billion in 2021. The NFT market transacted more than US$12.13 billion in the first quarter of 2022 alone.
Most NFTs up until recently were a part of the Ethereum blockchain, but now there are smaller and more recent blockchains, including Solana, Polygon, Avalanche, and Cardano. Solana is presently its second-largest platform for NFT sales. On it, hundreds of projects are currently being developed. Developers were drawn into the Solana ecosystem by their affordable prices and quick transaction times.
What is DeFi?
Financial services based on smart contracts are referred to as DeFi collectively. On the blockchain, a smart contract is a self-executing contract. They are used to verify and document direct transactions between buyers and sellers.
The applications created by DeFi are intended to mimic and replace conventional banking, lending, and investment tools while utilising cryptocurrency as opposed to fiat money. They have a decentralised, open, and public ecosystem in which everyone can take part without bureaucracy. DeFi does not require transaction approval or execution from middlemen like banks or brokers. This is because it is a decentralised blockchain-based system.
The attention and investment that DeFi receives from investors, crypto entrepreneurs, and tech pioneers demonstrate its expanding appeal and adoption.
By mid-May, more than $139 billion had been committed to DeFi-related contracts, up from $18 billion in January 2021, according to Defi Llama.
DeFi frequently uses the DeFi platforms Ethereum, Avalanche, and Polygon Blockchain. Lido Finance, Aave, and MakerDAO are three significant DeFi protocols that support staking. According to cryptocurrency experts, DeFi is still in its infancy. It still has a long development trajectory and is well-positioned to dominate the digital asset economy.
Should You Invest in DeFi or NFT?
NFTs and DeFi may be able to supplement your current holdings of digital coins in your portfolio if you’re looking to invest in cryptocurrencies. It is usually advised you go for both.
According to Nigel Green, CEO and founder of deVere Group, one of the biggest independent financial advice organisations, both present solid investment prospects. He claimed that one of the most well-liked methods for investors to benefit today is through the use of crypto assets.
You can increase your crypto assets without incurring risks through trading. However, NFTs offer value and potential in a variety of fields, including the arts, sports, music, medical records, identity verification, supply chains, and gambling, for individuals who are serious about accumulating money over the long term.
Celebrities including Paris Hilton and Snoop Dogg have adopted NFTs and introduced their own collections. Along with well-known brands like ESPN and Anheuser-Busch and Time. Justin Bieber, and Reese Witherspoon, Heidi Klum are just a few of the famous people who are ardent NFT collectors. According to reports, Justin Bieber has more than 2,000 NFTs.
NFTs are generally employed as repositories of value as an investment instrument. I’m hoping this will result in an increase in value.
The DeFi platform, on the other hand, offers the chance to use the cryptocurrencies you own to produce passive income. Traders make passive income through staking and yield farming.
A DeFi investing method called “yield farming” involves investors lending bitcoins in exchange for interest. Specific Token-Her pairs are given liquidity by investors by locking them in Smart-Her contracts. They get rewarded in return. Additionally, you don’t have to sell your bitcoins to make a profit with yield farming.
DeFi vs. NFTs: What Do They Offer?
A key consideration when choosing between NFT and DeFi is the investment horizon. Parallel’s CEO and founder, Yubo Ruan, asserts that while NFTs will certainly surpass DeFi in the long run, “I think they will have a longer term than DeFi.”
NFT Staking is a solution that combines the best of both worlds for investors that enjoy both the NFT and DeFi features. By locking assets and receiving prizes on DeFi platforms, NFT collectors now have a new opportunity to supplement their income. For instance, some games on its platform allow NFTs to be used as utility tokens.
Owners can increase their gaming character’s skills and gain more rewards by using NFTs.
DeFi and NFTs are both impacted by market volatility, technological flaws, and legislative restrictions. The hazards associated with yield farming and staking are comparable and include sudden dips in price. As well as faults in the code, scams that take advantage of technical flaws, pump-and-dump schemes, and other gimmicks.
By selecting respected projects that thoroughly review their code and choosing assets with low volatility, investors can lower their risk.
In addition, it is advised that newbies must do their own homework and never invest in something they can’t afford to lose, as with any investment.