What Are NFTs and How Can They Be Used in Decentralized Finance? DEFI Explained

NFTs stand for non-fungible tokens and they are one of the types of cryptographic tokens that can represent ownership of digitally scarce goods such as pieces of art or collectibles.

“Non-fungible” is not a very popular word so let’s see what it really means.

In economics, fungibility is the characteristic of goods or commodities where each individual unit is interchangeable and indistinguishable from each other.

Although NFTs can be implemented on any blockchain that supports smart contract programming, the most noticeable examples are ERC-721 and ERC-1155 standards on Ethereum.

When it comes to DeFi, NFTs can unlock even more potential for decentralized finance. Currently in DeFi, the vast majority of DeFi lending protocols are collateralized. One of the most interesting ideas is to use NFTs as collateral. This means that now you’d be able to supply an NFT representing a piece of art, digital land or even a tokenised real estate, as collateral and borrow money against it.