How Defi in Metaverse can enable massive value creation

Metaverse projects provide services like staking, buying/selling of virtual lands, or NFTs on the marketplaces. Some of the most well-known examples of these metaverse projects are Decentraland, Axie Infinity, The Sandbox, etc.

Decentralized finance( DeFi)  is growing at a fast pace but still, only 103 billion dollars of cryptocurrencies are deposited in Defi applications. In 2021, Defi achieved 4.6 billion dollars in annualized monthly revenues, which is less than 5% of JPMorgan’s revenue from last year. The primary reason for this small amount of revenues is the absence of a bridge from CeFi to DeFi, which prevents DeFi protocols from using the real-world and income-bearing instruments as a new form of collateral. 

Defi applications in metaverse can create exceptional value for the users as it does not have any poorly applied regulation by the government. The economy created in the metaverse will be larger than today’s digital economy due to its open and permissionless nature which enables it to provide financial services globally. The speed of innovation that comes from the decentralized and permissionless nature of metaverse will make it difficult for traditional systems to keep up with it. The wealth generated by the economy in metaverse will be greatly enjoyed by new generations as it favors digital native people.

Key Trends at the Intersection of DeFi and Metaverse

Development of Financial Tooling

Previously, only developers were able to utilize the full potential of DeFi due to its technical complexity. Now through NFT platforms, creators and communities will be able to launch their own social tokens providing a share of royalties to the buyers of tokens. Fans and communities will be able to share the success of their favorite creators and brands by buying their tokens.

Improvement of DAO Services Stack

In metaverse, the DAO stack will be vastly improved. DAOs will be using on-chain digital and financial services by collective governance from the community without the need for central intermediaries such as banks, financial institutions, etc. DAO members will be able to join or exit at their discretion.

Financialization of Everything

Generation Z is showing more interest in becoming more financially literate and investing their money than previous generations. They understand the importance of investing. Nowadays financial services are providing different ways to arrange personal finance but there are still some areas in finance where retailers don’t get access. Metaverse allows open free markets where everyone has access to any service and there is no barrier to Entry. Any digital asset can be traded in the open market and price discovery happens in real-time.

Activities in Metaverse Powered by DeFi

Virtual Worlds

Virtual worlds are digital spaces that are designed and shared by individuals so that they can interact in a custom-built, simulated world. The virtual world may or may not mimic the real world. The virtual world often comprises scarce land, buildings, avatars represented as NFTs that can be purchased, traded, and built freely in this open world. The most notable examples of virtual worlds are Decentarland, The Sandbox, Somnium Space CUBEs. In the last 365 days, The Sandbox metaverse has sold 64,870 NFTs. 

Marketplace

Marketplaces are digital places that provide a platform for buyers and sellers of NFTs facilitating better price discovery. Marketplaces such as OpenSea, Superrare, and Rarible allow users to freely trade and issue NFTs directly. Some platforms also allow fractionalization of NFTs into fungible tokens with proportional ownership, thus providing liquidity to the high valued NFTs. For Example, NFTX, Beeple’s B20 index.

Yield-bearing NFT

NFTs can produce a yield in two ways, directly or indirectly. Users can earn yield indirectly by using NFTs as collateral for taking out loans and then reinvesting the loan amount in any DeFi protocol to earn yield. Platforms such as Charged Particles are providing a framework to enable users to earn yield directly from their NFTs by using DeFi elements. Some Avatars categories like CyberKongz, SupDucks can also be considered as yield-bearing NFTs.

Access Tokens

Access tokens can be both fungible and non-fungible tokens that give their owners various forms of value by providing access to the community, specific people, merchandise, and tokens minted in the future. The Bored Ape Yacht Club is a good example where owners of ape NFTs get access to an exclusive Discord server and ‘The Bathroom’, a digital area acting as a collaborative graffiti board. Club members are also rewarded with free NFTs, which can be resold in the market. 

Conclusion

The inclusion of DeFi in metaverse will be creating an economy that will be greater than the current digital economy. Digital native people will get access to every financial service that metaverse has to offer. There will be no discrimination between retailers, VCs, and hedge funds. Price discovery of digital assets will happen in real-time. Fans will be able to buy tokens of creators, brands and will be able to share their success as well. DAOs will play an important role in this economy as groups of people can come together and invest like real-world hedge funds.

Each activity in metaverse will have a DeFi element to boost their growth. Protocols working at the intersection of DeFi and metaverse will create enormous value for users. These protocols will enable users to earn yield from their digital assets. In the future, we will be seeing innovation in this space accelerating at a fast rate and bringing new approaches to generate value for the ecosystem.