Non-Fungible Tokens (NFTs), which emerged in the world of games and became famous with digital artshave the potential to totally transform the credit, financial securities and commercial finance markets, therefore, they represent a great opportunity for banks.
Cointelegraph spoke with Capco, the global technology and management consultancy of the Wipro group, which specializes in the financial services industry, who listed how banks can use the NFT industry.
“Digital assets, or crypto assets, are growing as an asset class and as an investment option in banks’ portfolios. Now, NFTs also appear as a possibility to guarantee contracts. One of the reasons for this is that, by traveling on blockchain networks, they allow more transparent operations and with less risk in terms of the characteristics and delivery of this guarantee. There are other points such as the fact that they reduce the number of intermediaries, the transaction time and the costs”, highlights Alexandre Bueno, senior manager of Capco and head of Capco Digital Lab São Paulo.
NFTs are smart contracts that represent a unique digital asset, or even real. One of the main differences between a cryptocurrency like bitcoin and a non-fungible token is that the latter are not exchangeable with any other asset.
In the midst of the pandemic, many linked to the arts were created and reached high prices. In 2021, the segment recorded sales of USD 25 billion. Capco explains that banks will be able to benefit from blockchain in their operations and, at the same time, have income and profits with the introduction of this new category of products in their portfolios.
According to Alexandre Bueno, “Observing and acting on NFTs can also help banks keep up with or even get ahead of fintechs and other competitors, as well as help develop their business strategy. Fixed income products, such as investment notes, for example, can flow securely through the blockchain, providing transparency, facilitating smooth settlement and increasing liquidity.”, adds the executive. Therefore, Capco sees this early stage as an opportunity to expose banks that want to gain a competitive advantage in this market.
Capco points out that many NFTs on the market are illiquid, so there is a business opportunity for banks as well. This is because they can create markets in which those who hold the tokens deposit them as collateral to receive loans in fiat currency, those issued by governments or even cryptocurrencies in return. Capco demonstrates that there are advantages to NFT collateral, as well as ways to cover future securitization and trade financing applications.
The mechanics are such that, in the case of use NFT as collateral, the asset owner connects his wallet to the platform, chooses the currency he wishes to receive as a loan and transfers his asset, signing the transaction with your connected wallet. The platform calculates the maximum loan limit for the borrower according to the chosen credit terms.
Lenders interested in certain NFTs make loan offers by taking these tokens as collateral. Once the trade is closed, the NFT is locked and will remain locked until the loan is paid in full. All of this is done with smart contracts.
Based on the analysis, banks can benefit and create new solutions for their customers because they have the potential to provide a safe market for NFT owners. Additionally, they can increase liquidity and support fair prices for tokens, increasing portfolio variety and opening up a new market.
The security provided by banks is important because NFTs have different prices and people are willing to pay different amounts for the same thing, so determining their price is not easy.
“Once both parties agree to the terms, the NFT would be deposited from the borrower’s wallet into a bank-managed escrow account and the loan could be facilitated through a smart contract. By providing a safe market for these transactions, banks can support collectors and investors in a number of ways, including increasing liquidity and supporting fair pricing for NFTs, increasing portfolio variety and opening up a new market for NFTs”, emphasizes Bueno.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.