Next Step for Institutional DeFi? Institutional NFTs

The institutional appetite for decentralized finance (DeFi) is being extended to incorporate the frothy world of non-fungible tokens (NFTs).

Announced Tuesday, custody and wallet technology firm Trustology is providing support for Ethereum-based NFTs, with a view to allowing institutional investors to use these tokens as collateral, for example, within the DeFi space. 

There’s currently an explosion happening in NFTs, which can be thought of as blockchain-based title deeds to a digital artifact. The trend is a carry-on from things like the original CrypoKitties phenomenon in 2017, with the technology (Ethereum’s ERC-721 token standard) later morphing its way deep into the world of digital art. 

Today, the value being conferred on everything from art to music to seminal tweets is measured in hundreds of thousands or even millions of dollars. Meanwhile, institutional NFT is becoming a thing, with funds like Delphi Digital, Scalar Capital and Sfermion investing in digital collectibles.

“A couple of years back when NFTs first became popular, DeFi protocols for lending, collateralizing and pledging assets didn't really exist,” Trustology CEO Alex Batlin said in an interview. “Now there are marketplaces to buy and sell NFTs, marketplaces to use NFTs as collateral for loans and so on.” 

Like DeFi, NFTs are normally associated with non-custodial wallets. But a collection of valuable NFT assets being managed on the behalf of a fund, for instance, would require a custody solution including rules to allow certain individuals to lend the asset or use it as collateral, said Batlin. 

“When it comes to selecting a custodian of NFTs, there’s potentially the need for more functionality than simply locking these valuables away in a vault,” he said.

Trustology, which was recently granted temporary Financial Conduct Authority registration, offers a range of automated transaction security controls such as co-signing, allow-lists and DeFi firewall rules.

“All this stuff is highly integrated,” said Batlin. “It’s becoming the world's largest marketplace for financial services.”