MetaFi: When DeFi Meets Meta
Matthew.BNB
Matthew.BNB 15 Feb 2022 •5 min read
Innovation never sleeps, and today you'll learn about an entirely new concept. This article will introduce you to the emerging MetaFi
ecosystem and describe what it could look like in the future, what the use cases are, and what challenges both developers and users might face.
What is MetaFi?
MetaFi is a blend of two words - Meta for metadata, and Fi for DeFi. MetaFi is a new paradigm shift that aims to standardize blockchain technology for traditional Web2 large-scale applications, including games, social media, and the metaverse. This would create a unifying standard that helps improve interoperability.
MetaFi is a concept that provides advanced and sophisticated DeFi Infra to all the different types of projects such as metaverse, GameFi, SocialFi, Web3, and NFTs and puts them under one umbrella – MetaFi. This is possible thanks to the metadata that defines ownership of assets. The idea of MetaFi aims to implement a wide range of blockchain functionality into one Meta ecosystem, interoperable thanks to defined metadata standards used across variant platforms and blockchains. MetaFi can include a mix of fungible and non-fungible tokens coupled with community governance such as Decentralized Autonomous Organizations (DAOs). The goal of MetaFi is to build and foster a new ecosystem, built on standardized metadata parameters, based around digital assets that empower mass adoption in Web3 and blockchain technology and provide users and players with new use cases.
The combination of these different crypto primitives enables a full-fledged parallel ecosystem serving users from around the globe via blockchain. MetaFi, a combination of meta and DeFi, aims to create standards for metadata and other technologies across networks, such as NFT and games metadata standards.
The use of the word Meta can be understood in this context as "all-encompassing," or "a means to an end," rather than an acronym to the metaverse, even though many of these applications will indeed be developed for use in the metaverse.
How does MetaFi work?
To improve interoperability, MetaFi takes advantage of the presence of metadata for assets on most blockchains. For example, an NFT's metadata will generally contain a link to the associated image. You can also add metadata to a bitcoin (BTC) transaction, allowing you to input extra information as plaintext.
Creating metadata standards usable on any blockchain will make assets easily machine-readable and sortable. An NFT marketplace, for example, could begin to understand and sort NFTs from many blockchains if they all present their metadata in the same way.
MetaFi Applications
As mentioned above, the opportunities in MetaFi will be unlimited, and here are a few use cases that might soon start coming to life.
Virtual worlds are digital spaces that serve the purpose of social, work, commerce or gameplay environments which may or may not mimic the real world. When they do represent the real world, they often comprise an element of scarce land represented as NFTs that can be purchased, traded, and built on freely.
Virtual worlds will offer you a place to play, build, or just meet with your friends and colleagues. Some businesses, such as Walmart, have already painted a vision of virtual shopping where users join the metaverse to shop for goods and services. Other businesses started offering land for sale where users can build their dream houses, architecture marvels, or just hang out with their friends.
Virtual worlds come with a wide range of implementations such as wearable NFTs, consumables, etc., offering simple and straightforward implementations of NFTs into virtual reality.
Marketplaces are decentralized digital places that match supply and demand, allow the discoverability of NFTs, users to trade freely and issue NFTs directly. There, NFTs are treated as financial assets and govern ownership. These marketplaces could be a go-to platform for everyone interested in buying and selling all kinds of NFTs - virtual wearables, in-game items, NFT art or real estate, and much more.
We're truly just at the beginning of the NFT era and we're yet to explore all of the use cases.
Yield Farming NFTs
Producing yield includes using NFTs as collateral for taking out loans and then reinvesting the loaned funds at a higher rate. Some NFTs will come with functionality that enables the owner to stake the NFT to earn yields or rent it to someone else who wants to use the NFT, for example, renting expensive or valuable NFT in-game items to players who normally couldn't afford them. In return, the owner receives a share of lender's earnings or a fixed payment for renting their NFTs to others.
If you're familiar with Binance.com, you probably heard about fan tokens before. These tokens can be both fungible and non-fungible and give their holders access to various forms of benefits, which can be a membership in VIP communities, access to special events, voting rights, and more.
"Fan Tokens give token holders special benefits and privileges with teams and brands. Sports clubs, teams, brands, and other influential people can use Binance Fan Tokens to grow their fan community and reward their supporters."–What is Binance Fan Tokens by Binance Academy
While Binance Fan Tokens have their specifics, the opportunities of fan tokens are yet to be fully discovered, and their use cases and forms will vary depending on the issuer.
MetaFi challenges and current limitations
Because MetaFi can be understood as an all-encompassing ecosystem based on metadata, often placed within virtual reality, it comes with a set of requirements for both software and hardware. These requirements pose challenges not only to those building in the MetaFi but also to the users and players who want to interact with it.
Additional challenges come naturally from the blockchain where MetaFi runs and operates.
For MetaFi to take a clearer form, BNB Chain community must work on scaling and developing reliable tools – marketplaces, financialization primitives, creator tools, community-oriented business models, etc., to allow both users and developers with easier access to the blockchain and dApps running on top of it. It's necessary to explore improvements on foundation technologies like layer 1, which will lower transaction fees, increase throughput, enable scaling, and overall make applications running on blockchain protocols more accessible.
The ongoing GameFi and DeFi craze highlighted the need for sustainable tokenomics that can provide users with more stable and reliable incentives that make sense on an ongoing basis and allow long-term growth and discourage big sell-offs driven by volatile drops in APY or incentive rewards.
And last but not least, the BNB Chain community must focus on the legal side of things and governance, which shall ideally empower token holders with usability features such as voting rights and earning yield. This area needs to be clear and transparent to protect all participants.
The future of MetaFi
The future of MetaFi is yet to unfold, but there are a few use cases starting to unfold already. A big role in MetaFi will be played by decentralized identity management and reputation management systems which will provide users with simple access to their digital identity and assets. However, these are all still in their infancy stage.
Naming services are tools that could help us address the ongoing issue with long and complex addresses. Simple naming services create space for human-made mistakes instead. This would allow you to send your tokens to a simple address name, for example, MatthewBSC.bnb rather than having to type in a long BEP-20 address.
If we want MetaFi to be truly meta, BNB Chain needs to develop several standards across various blockchains, be it layer 0 or layer 1 networks, as at the moment, most of them are not 100% interoperable.
None of this will be possible without stable and interoperable projects developed with multi-chain functionality and bridges that will facilitate the enormous volume of asset and data transfers.