Uniswap Labs has been moving into the NFT space with the goal of bringing the industry together and making it easier to trade and lend NFTs.
The NFT industry’s fragmented finance sector makes selling NFTs and lending money to NFT holders much harder and riskier. Uniswap, Ethereum’s most popular Decentralized Exchange (often called a “DEX”), wants to become a powerful player in fixing this problem. Over the past few months, Uniswap Labs has made moves and shown interest in the NFT space. This could solve the biggest problem that NFTs have.
When Uniswap’s first version came out in 2018, it was a big deal for crypto. Thanks to Uniswap, crypto holders could trade tokens from the comfort and safety of their own wallets, even hardware wallets. Uniswap made it possible to buy or sell cryptocurrencies that aren’t listed on exchanges by letting their creators make “liquidity pools” full of tokens that users could swap for. This started a new era for Decentralized Finance (DeFi). This was great for “fungible” tokens, which are all the same, but it didn’t help at all with “non-fungible” or “NFTs” which were still a new idea at the time. Unlike crypto lending/borrowing apps, it’s hard to make NFT lending/borrowing apps because it’s almost impossible to sell a repossessed NFT for a predictable price. This is mostly because the NFT industry is still very fragmented.
But the NFT industry might not stay split up for long. On June 21, Uniswap Labs announced that it had bought Genie, an app that brings together (or “aggregates”) multiple NFT marketplaces into one interface. This makes it easier for sellers to choose between marketplaces based on their NFT royalty payment policies and the size of their customer base. The Head of NFT Product at Uniswap, @Scott eth, wrote on Twitter on August 23 that Uniswap is now “in talks” with 7 NFT lending and borrowing protocols to fix the problems of fragmentation and “information asymmetry” in the industry as a whole. These two moves are big for the NFT industry as a whole. CoinDesk reported in September 2020 that Uniswap’s trading volume was higher than Coinbase’s. Putting NFT marketplaces and financial services next to Uniswap’s hugely popular token swapping protocol could give the NFT industry a huge boost.
The NFT industry’s biggest problem right now is fragmented “liquidity,” which means the ability to turn an asset into cash or cryptocurrency. As a noun, “liquidity” usually refers to the amount of cash or cryptocurrency waiting in reserve to buy an asset, like the tokens in Uniswap’s liquidity pools. The process of turning an asset into cash or other “liquidation” assets is where the word “liquid” comes from. Most people think of NFTs as “illiquid” assets because they are hard to sell, and it is almost impossible to predict the highest price an NFT will sell for at any given time. This makes it hard to make NFT financial services and often much riskier to invest in them than in regular DeFi applications.
If their liquidity problems can be fixed, NFTs have a lot of potential for financial services and other ways to make money without doing much work. Fractionalized NFTs, also called “F-NFTs” break up an NFT into smaller, identical tokens that can be bought by many lenders who are willing to take less risk than a single lender who is willing to take a big risk. This could make it easier to get a loan. Soon, there will also be NFT rental contracts, which will add to the financial services for NFTs by giving people a risk-free way to make passive income from NFTs used in gaming and metaverse worlds.
Even though it’s impossible to make a DEX that can instantly sell an NFT, Uniswap is trying to get as close to that goal as possible by connecting all NFT marketplaces into a single interface that offers lending and borrowing services and can easily add more services. Uniswap is likely to become an important part of Web3’s financial system because it can convert all currencies and act as a hub for NFT finance. Fixing the problems with NFT finance apps before the best ways to use them are thought of could give the industry a big boost, and Uniswap is the right app for the job.
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