From JPMorgan Chase to Goldman Sachs, top financial and wealth management companies are already exploring how they can deploy non-fungible tokens to boost their operations, and further maintain their relevance in the era of rapid technological evolution and industrial disruptions.
Traditional financial sector
Traditional financial institutions are known to offer clients services based on their areas of specialties. Based on these specialties, we generally group banks as commercial, mortgage or investment banks. In turn, they render services such as commercial loans, safekeeping of valuables, housing loans and investments. Banks are also known to engage in the trading of financial instruments to further boost their revenues.
A customer who wishes to obtain a loan will first have their credit score checked, and such an individual is expected to have collateral in place before they can obtain a loan. This also follows the same pattern for a customer who wishes to obtain a mortgage.
As technology evolves, traditional financial institutions are beginning to explore how they can capitalize on NFTs in the context of the metaverse. If NFTs can represent real-world assets in the metaverse, they could also help pave the way for blockchain transferral of value.
Potential NFT use cases in finance
This is already an established aspect of decentralized finance. There are quite a number of ways that NFTs can be potentially used in traditional finance. Below are some possible options:
Lending and asset collateralization
Looking at NFTs from their relevance in the metaverse could help provide a context for financial institutions.
As the metaverse continues to grow, the value of virtual lands and other virtual properties becomes evident. Already, metaverse lands are worth thousands of dollars, and they could well be suited as collateral for customers who want to obtain loans from traditional financial institutions.
This is the point of view of American banking giant JPMorgan, which recently purchased a piece of virtual land and developed a lounge on Decentraland. JPMorgan even labeled the metaverse as an industry with the potential to generate $1 trillion in annual revenue.
Store of value
The traditional financial sector is no stranger in categorizing customers’ high-end assets such as art and collectibles as part of their investment portfolios. This notion can also apply to digital assets. NFTs provide an option for banks and financial institutions to permanently store valuables and other sensitive information on the blockchain.
Having launched its own blockchain called Onyx, JPMorgan is an example of how personalized services could be offered by a traditional financial institution on the blockchain.
The American investment bank Goldman Sachs already regards NFT as a powerful tool to offer powerful financial investment services to all. The bank sees NFTs as a route to the tokenization of real assets that could further transform investment banking globally.
NFTs help create on-chain value for real-world assets while also enabling the easy transfer of ownership from one user to another. This transfer represents an ownership right that is easily conferred on the new owner without lengthy paperwork and bureaucracies.
The initial conception that cryptocurrencies and other blockchain solutions will eventually wipe out traditional finance might not materialize. But if there is one thing that is quite obvious, it is that the banking and wealth management sector knows how to evolve with the demands of technology. From all indications, this is set to continue as more innovative instances of crypto and NFTs are adopted into traditional financial services.