Isn’t it true that everyone is talking about Defi, Metaverse finance (MetaFi), and the metaverse? Are these terms interchangeable? Why are experts so enthralled by these technologies? This post will throw some light on the subject and discuss essential points. So, let’s get started. Since 2018, Decentralized Finance (Defi) has been the talk of the crypto world for various reasons. Defi is based on permissionless innovation, a goal for greater financial inclusion, and principles governing wealth sovereignty. At the same time, the metaverse, a new type of technical innovation, has evolved.
Now the combination of these two technologies is coming up. In the form of MetaFi, which is fascinating to the crypto community. Even though in its early stages now, Defi has gained the attention of the mainstream. Only 5% of total crypto assets are used as collateral in various Defi platforms. It will be interesting to see how the connection between MetaFi and Defi evolves. Before discussing MetaFi, we need to understand some facts about the Defi.
What is Defi?
Decentralized finance (Defi) is the latest open finance management system with better transparency, interoperability, ease of composing, and programmability. Decentralized finance, or Defi, is a system that allows investors to trade financial products over a decentralized blockchain network.
The transactions do not require using intermediaries such as banks or brokers. Defi accepts investors who do not have a government-issued ID, a brokerage or bank account, residence evidence, or a social security card. Defi is limited to only a few use cases like lending and borrowing. But it has the potential to expand its inclusion in a wide range of applications with metaverse.
Introduction to Metaverse Finance (MetaFi)
Metaverse Fi or MetaFi involves the services, products, and protocols designed for complex financial transactions between fungible tokens, derivatives, and non-fungible tokens (NFTs). Crypto space is one of the crucial aspects of the metaverse that eases the creator economy in the metaverse. As per the industry experts, the metaverse will surpass the real-world economies by a significant margin in the coming years. Two layers of the metaverse will impact the functionalities of MetaFi crypto.
Each layer of the metaverse, namely the interface layer and financial computation task, has its distinct functionality. Various software and hardware determine the end-user experience in the interface layer. On the other hand, metaverse computation tasks are handled with a financial compute layer, a democratic, decentralized, and transparent foundation for defining logic for the creator economy. As per the industry experts, a significant development in the metafi is expected with the establishment of decentralized ledgers and a parallel economic system. Metafi will offer global accessibility in the crypto space with transparency. Many new trends in digital-first economics are coming in the form of Play-to-Earn games and NFTs.
Why is MetaFi gaining popularity?
Let us now discuss the driving force for the popularity of the metafi.
1. MetaFi has the potential to capture the flow of digital assets and value in the open free market. It establishes new ways of the real-time discovery price, thereby determining the unlocking of hidden value.
2. Crypto developers use the complexity of the device. At the same time, NFT platforms are establishing the economic terms for communities and creators that they can exchange with users. NFT creators can earn perpetual tokens with their personalized social tokens
3. In adopting the Metafi, matured governance models like DAO are playing a crucial role. In combination with DAOs, Defi has introduced community-based insurance for the users.
4. The introduction of the Play-to-earn games and innovative ways of data monetization can introduce the Metafi-based applications in the long run.
Challenges for MetaFi
The development of the metaverse is still in the development stage. Even though many advantages are visible in combining the Defi and metaverse, some prominent challengers exist.
1. The NFT creators must have precise predictions for the value of their NFTs for selling, purchasing, and borrowing against their NFTs. Usually, the NFT appraisals are the cause of uncertainty for lenders.
2. NFT factorization is different for the MetaFi crypto applications, which is another challenge to adopting MetaFi governance.
3. Another challenge before the MetaFi is the difference in standards across the blockchains, creating a hurdle in combining metaverse and Defi.
Final Thoughts: In 2020, the device gained a lot of popularity, but it is still adopted in limited use cases, particularly in lending and borrowing applications. In contrast, the metaverse is a digital revolution in the real world. It will be interesting to watch how these two trends define and metaverse combine to create new products in the crypto ecosystem.
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