In the past few years, there have been a lot of promises in the decentralised finance (DeFi) space. Many touted decentralisation as a key disruptor of the traditional finance space, offering an alternative ecosystem built on the blockchain.
The promised revolution, however, has yet to be realised. Independent Reserve Singapore CEO Lasanka Perera says the development and activity in the global DeFi space have slowed due to rising interest rates, making DeFi protocols for lending and borrowing less attractive for investors. Coupled with higher perceived risk caused by the larger crypto fallout, much capital has been taken away from the DeFi space, impacting the industry.
Since August last year, the total value of all assets locked into DeFi protocols has plateaued at around US$50 billion ($67 billion). This is a significant drop from the peak of US$178 billion in November 2021, according to DeFi data aggregator DeFiLlama.
Perera says it is too early to dismiss DeFi’s potential, adding that he has a bullish long-term outlook on its development. He believes that as technology evolves and assets become increasingly digital, complex financial transactions such as lending and trading will also be digitalised.
It is also worth noting that there are interesting developments in the DeFi space, says DeFi platform Cake DeFi CEO and co-founder Julian Hosp. For instance, a few years ago, the DeFi space focused on speculation, yield, and the possibility of getting as many returns as possible in cryptocurrency. Today, however, there are a lot of utility and architecture-driven projects to enable the ecosystem.
Hosp highlights two projects within the utility and infrastructure space of DeFi — Synthetix and DeFiChain. The former specialises in minting and creating synthetic tokens or assets, enabling the issuance of synthetic assets on the Ethereum blockchain. DeFiChain, on the other hand, is a decentralised blockchain platform aiming to bring full DeFi capabilities to the Bitcoin ecosystem.
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Perera foresees the “animal spirits” in DeFi to return once interest cuts occur and inflation cools down. As capital enters risk assets such as DeFi protocols, stakeholders and investors can expect more activity. He thinks the players have ample opportunity in the next few years to make DeFi more user-friendly and scalable, improving liquidity and lowering transaction fees.
The world will remember 2021 as the year of the non-fungible tokens (NFT) mania. When NFT artist Mike “Beeple” Winkelmann sold his work for US$69.3 million in March 2021, it started the boom in NFT trading. That year alone, NFT trading volumes hit US$25 billion, with a peak of over US$4 billion in October with a peak of over US$4 billion m-o-m from October 2021 to March 2022.
But similar to any speculative economic bubble, the NFT market crashed shortly after when trading volumes plummeted from under US$3 million a month in early 2022 to US$600 million by November 2022.
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Increased NFT activity
Marvion CEO Raymond Chua, a Web3 firm headquartered in Singapore, attributes the crash in trading volumes to a lack of solid use cases for NFTs driven by hype. Marvion is a blockchain company that sources digital assets, acquires the underlying intellectual properties (IP) and licensing rights and mints the assets into Hybrid NFTs. It entered a reverse takeover of over-the-counter pink sheet mining company Bonanza Goldfields Corp in September 2021 and is completing the transaction.
Despite a lull in activity in the last year, Chua fully believes in the potential of NFTs. Marvion recently launched Marvion DOT, a digital ownership token that allows the buying, selling and licensing of IP rights on the blockchain. Chua says this is effectively an NFT, but adhering to compliance with US regulations which prohibits the firm from naming it as such.
Its first-use cases have been in the media and entertainment industry in Hong Kong, where individuals can own exclusive IP rights to film titles which they can reproduce into the likes of mobile games.
Marvion also has tie-ins with the real estate industry in Australia, where they are working with property developers Resimax Group in Melbourne to launch a digital membership programme in the Web3 space. The property developer can enable clients to accumulate credits through events and referrals, which they can eventually use to offset their property purchases.
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Marvion CEO Raymond Chua. Credit: Marvion
Last year, Marvion recorded US$11.48 million in revenue, primarily generated through their IP licences, as well as business deals with real estate developers in Australia and universities in Hong Kong interested in getting into the Web3 space.
Chua says that the NFT trading volume in recent months has begun to show signs of increasing activity. In February, trading volumes shot back up to US$2 billion, indicating to Chua that his bet on NFTs still has a future.
Crypto data provider CoinGecko’s head of research Zhong Yang Chan also sees the potential in NFTs, saying that it has barely scratched the surface. Although it started in the digital art and gaming space, the usage of NFTs has entered other areas, like loyalty programmes.
Coffee chain Starbucks, for example, launched its NFT project last December via a membership programme dubbed “Starbucks Odyssey”. The programme provides customers perks, including free drink upgrades and access to certain merchandise. Since then, the company has released two NFT stamps priced at US$100 and US$99 each — “The Siren Collection” and “The Starbucks First Store Collection”. Both have since sold out.
Other brands like sports product retailer Nike and automobile manufacturer Porsche have also launched their own NFT collections. These loyalty programmes present good marketing opportunities for these companies, especially as it is scalable on a global level, says Zhong.
Aside from loyalty programmes, there are also greater utility use cases for NFTs. One example is the Ethereum Naming Service (ENS), a form of NFT which maps human-readable names to machine-readable names, such as wallet addresses, which consist of numbers and alphabets. Making it easier to identify wallets or smart contracts on the Ethereum blockchain, ENS can also link IP addresses and decentralised websites.
“There is a misconception that NFTs simply consist of cute cats and apes; this is not the case. Some of these NFT projects, such as Pudgy Penguins, have moved from solely digital arts to child-friendly IP like Disney did with Mickey Mouse and the whole cast. There’s a market for these,” says Zhong.
