Non-fungible tokens (NFTs) took the investment market by such a storm that according to the NFT marketplace tracker nonfungible by the march of 2017more than $500M in USD had been exchanged over its sales. However, despite the explosive hype, there is a lot of confusion around understanding NFTs and navigating their way forward.

## What are NFTs?
NFTs are exclusive digital assets that are managed on a blockchain network. however, the confusion arises herein: NFTs don’t represent the actual asset but only a record of its sole ownership. as the terms of transaction differ from NFT to NFT, here are the criteria that define ownership of NFT-

· Rare and unique: Each NFT is unique in the sense that it cannot be copied, substituted, or subdivided. every digital asset is one of its kind.

· Interoperable: NFTs can be traded and transferred across crypto wallets and marketplaces. this enables users to trade their NFTs on different platforms, for instance, selling the skin of a video game gun.

· Immutable: Once the NFT is encoded on the blockchain, it cannot be tampered with which allows owners to validate the authenticity of their digital asset.

· Ownership: Holding the NFT confirms the ownership of the digital asset.

The process of owning an NFT is simple. an individual only needs to have a crypto wallet that can be connected to the NFT marketplace which will enable them to mint or list their NFTs.

## The growth of NFTs
While NFTs aren’t new, their recent hype can be attributed to the “wealth effect” wherein individuals spend more as their net worth increases. in this scenario, towards the end of Q1 ‘21, the price of ether exploded by 1000% and bitcoin surged by 600% which meant significant returns to early crypto buyers. Meanwhile, those who would purchase expensive NFTs were already settled in the crypto marketplace.

Owing to their immense popularity, NFTs present a huge potential for gaming and digital artists who can sell their artwork directly to users. Recognizing its scope, reputed brands such as Taco Bell, Pringle’s, NBA, as well as celebrities such as Paris Hilton and Lindsay Lohan hopped on the NFT train to auction their digital assets.

## The Challenges and Drawbacks of NFTs
Following are the challenges that might hinder the progress of NFTs: -

· The lack of credence on the NFT system as the transactions can be both expensive and slow

· Despite “smart contracts” on the blockchain, its legal enforceability is questionable

· The environmental impact owing to the colossal carbon footprint of blockchain networks

Despite the challenges, NFTs have an immense growth potential that goes beyond the gaming and digital art ecosystem. It can enable brands to come up with new ways for distribution and monetization and also allow companies to delve deeper into DeFi and NFTs as evolved financial services. as the applications and protocols continue to build on this latest tech, its demand in the coming years is sure to surge.

To know more, you can read the article here.

The article by CBI Insights elaborates the journey of NFTs from provenance to its way forward. In reference to the same, the following article briefly demystifies the concept of NFTs and explains where it’s headed in the world of tech.

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The ABC of NFT


While building DeFi protocols or any other smart contract application, various security inspections need to be done before deploying it on a blockchain mainnet. Instead of solely focussing on solidity pitfalls while reviewing the code, ensuring a dApp’s security is strong enough to make it ready for mainnet, must be followed. The contingencies towards the most popular types of DeFi security vulnerabilities, such as oracle attacks, brute force attacks, and many other threats, would be beneficial to save you and your users billions of dollars, along with a long span of aggravation. Doing your due diligence before launching your protocol is imperative, and here are a few ways to tackle the DeFi attacks:

# **Be Aware of Reentrancy Attacks**

In the reentrancy attack, the most common type of DeFi security attack like the infamous DAO hack, a contract calls an external contract before updating its state. Quoting the Solidity documentation: ‘Any interaction from a contract (A) with another contract (B) and any transfer of Ether hands over control to that contract (B). It makes it possible for B to call back into A before this interaction is completed.

Solution: Before transferring ETH/tokens or calling an untrusted external contract, one should update the internal state of the contract. There are a few strategies to do that, like using mutex locks or simply ordering your function calls in a way where you only reach out to external contracts or functions after the state is updated.

# **Avoid Common Glitches**

This point is a sort of catch-all for Solidity, but to have a secure contract, you need to build it with all of these DeFi security principles in mind. To write really impactful Solidity, you must be aware of how it works under the hood. One must consider the issue of Overflows/Underflows, Loops Gas Limit, and Avoid using tx. the origin for authorization in smart contracts, Proxy Storage Collision

# **Complete Unit Tests Coverage**

It identifies weaknesses and vulnerabilities early-on, decreasing the risk of substantial losses. As a chain is only as strong as its weakest link, remember to include “complete” unit test coverage, not merely 65% or 70%, or only “the most significant elements of a contract.”

# **Security Audit of Smart Contracts**

Always remember how essential smart contract auditing is. Do not minimize the development time by reducing the time for audit or full test coverage. Remember, if you won’t double-check your work, the hacker definitely will!

While a security audit does not safeguard a project from hacking attempts, it works pretty well to identify areas for improvement that would otherwise go unnoticed in full unit test coverage.

# **Always Get an External Audit before Deploying to Mainnet**

Consider an audit of your code as a security-focused peer review. Auditors will scan your entire codebase line by line and use formal verification techniques to check the vulnerabilities of your smart contracts. Deploying code without getting it audited or changing code & redeploying after an audit is an easy way to open yourself up to potential vulnerabilities.

# **Put together a Disaster Recovery Plan**

Depending on your protocol, it’s always best to have a contingency plan in case you get hacked. Some popular methodologies are:

-   Getting insurance
-   Installing an emergency pause feature
-   Having an upgrade plan

# **Protect against Frontrunning**

In blockchains, all transactions are visible in the mempool, which means that everyone can see your transaction and potentially make a transaction before yours to profit off your transaction.

For example, let’s say you use a DEX to exchange ETH for DAI at the current market price. Once you send your transaction to the mempool, a frontrunner could make a transaction to buy a large quantity of ETH just before your purchase, causing the price to rise. They could then sell you the ETH they purchased at a higher price and profit out of your pocket.

Fortunately, a group of world-class researchers of smart contract and cryptography, including Chainlink Labs Chief Scientist Ari Juels, are working to solve this exact problem with “Fair Sequencing Services.”

# **Uniqueness Code**

Continuing with the dForce example, the dForce contract pattern has a framework similar to the preceding Compound contracts. It demonstrates that duplicating other protocols’ coding will not safeguard your DeFi project. When someone copies a code, they must retrofit the project’s requirements to the code, which gives gaps and incompatibilities. Future exploits will be affected by these factors.

While building DeFi protocols or any other smart contract application, various security inspections need to be done before deploying it on a blockchain mainnet.

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How to Tackle DeFi Attacks?

As companies use blockchain to drive greater transparency and precision across the digital information ecosystem, they’re amplifying awareness of the technology in sectors ranging from finance to infrastructure and even the entertainment sector. Here are the latest innovative ways in which companies are harnessing the power of blockchain technology in these three major domains.

## Financial services
Blockchain integration in finance has created the revolution of Decentralized Finance (DeFi). From a global perspective, banks serve as the critical storehouses and transfer hubs of value as digitized, secure, and tamper-proof ledgers, blockchains could fulfil the same responsibility, adding enhanced accuracy and information sharing into the financial services framework. JPMorgan Chase, the 200-year-old & world’s leading global financial services firm is facilitating to and fro real-time international payments with its clients through its JPM Coins. Other leading banks like Citigroup & Goldman Sachs are running trials with blockchain. It is a popular analysis that blockchain can rattle the $5 Trillion banking industry by disintermediating the basic services that banks provide, from payments to clearance and settlement systems.

Facilitating payments is highly profitable for banks. International B2B transactions alone are expected to reach a total value of $35T in 2022, according to Juniper Research, however, blockchain technology offers a secure and cheap way of sending payments that eliminates the need for verification from third parties and overpower processing times for traditional bank transfers.

Investing sector is also impacted by blockchain technology. We can see impact tokens integrated with smart contracts, incentivizing activities that support the UN’s Sustainable Development Goals. Disintermediation of capital formation is also adapted by the crowdfunding industry by giving pledgers the ability to directly fund creators.

Another finance sector absorbing the concepts of blockchain is mortgage/lending. Conventional banks/lenders provide loans based on credit reporting, however, blockchain provides a cheaper, more efficient, and more secure method to do the same for a broader pool of consumers, using a cryptographically secure, decentralized registry of historical payments; so consumers could apply for loans based on a global credit score. Moreover, the insurance industry is directing its blockchain applications on operational efficiency improvement. They are experimenting with blockchain to drive down costs, increase speed to market, and provide better customer experiences.

## Infrastructure & Energy
Since blockchain could serve as a public ledger for a massive number of devices enabling them to mediate communication between them autonomously, several companies are incorporating this technology to allow any device to securely connect, interact, and transact independently, along with managing software updates, bugs, or energy management.

Construction is another highly regulated industry that employs a wide variety of tradespeople to take on very complex projects. It is a difficult and time-consuming task to validate their identities, quality of work, and credibility. A blockchain-based framework could resolve these issues by making it easier for general contractors to cross-reference and track progress across multiple teams. While sourcing construction materials from credible places and ensuring their quality could be implemented using blockchain technology, the incorporation of smart contracts simply automates issuing timely payments linked to project milestones. The application of blockchain in real estate can help with recording, tracking, and transferring land titles, property deeds, liens, and more, ensuring the accuracy and verifiability of all documents.

Energy management has been the most centralized industry historically. In the US and UK, centralization of authority to allow someone to transact in energy lies in the hands of established power holding companies like Duke Energy or National Grid or with a reseller that buys from a big electricity company. Blockchain’s distributed ledgers could minimize (or eliminate) the need for such intermediaries, changing the traditional energy-exchange process. An open-source blockchain platform would enable utility companies’ customers to transact in ‘decentralized energy generation schemes’ to generate, buy, and sell energy to other people.

## Entertainment
Smart contracts of blockchain technology bring fairness in content sharing for creators, along with automatically disseminating the revenue on purchases of creative work according to predetermined licensing agreements. Moreover, the cost of video traffic by decentralizing video encoding, storage, and content distribution could dramatically reduce using blockchain disrupting Netflix, YouTube, and other players in the video distribution market.

In the world of gaming, blockchain enables gamers to attain a more even playing field for competing, getting rewarded, and exchanging digital assets, as digital tokens are securely exchanged for cryptocurrency without third-party investment. This model, termed Play-to-Earn, allows the gamers to use one perfected character or set of skills and items across digital worlds via blockchain’s distributed ledger, thereby quickly earning rewards and exchanging them through one decentralized source. NFTs and the Metaverse make the model more profitable to gamers. Axie Infinity, the NFT-based online video game, became very popular in 2021 as the players were not just earning tokens for in-game purchases, but also crypto exchange for real money. The game’s sales spiked from roughly $20K in Q1 2021 to a peak of $246.32M in Q4 2021.

There is also an urgent demand to reinvent social media networks as platforms where users are paid for the content they create, and they can also maintain anonymity. Blockchain technology and tokenization have also affected the art industry by giving a way to global access to the art market and reducing transaction costs.

As this new concept of blockchain technology grows, we will be looking forward to transformations in every sector of the global market. This technology has the potential to penetrate every barrier and establish a better structure for every sector.

As companies use blockchain to drive greater transparency and precision across the digital information ecosystem, they’re amplifying awareness of the technology in sectors ranging from finance to infrastructure and even the entertainment sector.

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Impact of Blockchain in Financial, Entertainment and Infrastructure Industries

# Crypto Structured Products

## Structured Products

Structured products are not new. They enable retail investors’ access to derivatives and other complex financial instruments. Usually the initial principal invested is guaranteed in these products. They are complex in nature and normally managed by institutional wealth managers. Crypto Structured Products are different in a lot of ways, but the fundamental principle of hedging risks and optimising returns stays the same. With Decentralised Finance increasingly gaining traction, crypto structured products certainly have a future. Several blockchain based projects are working towards making it accessible to more and more retail investors. Composable blockchain networks have made it possible to design combined products of underlying sub-assets

## Value driven crypto investments

Easy money making, which might be a goal for a lot of individuals investing in crypto initially, is not the right vision to begin with. Like any other conventional investment, sustained growth in the wealth invested in crypto is an imperative goal. Increasingly there is a shift in the core functionality of crypto protocols to achieve this. Projects in this space are evolving new strategies and functionalities to bind with investors who see value in the longer run. This draws investors’ attention towards the core value of a project. They stick to the investment for a longer period of time. This helps in many ways. One of which is - changing the perception towards investments in crypto. Serious investors participate in the market, create value, take part in the governance and get adequately rewarded. Thus, eliminating pump and dumb schemes, quick money making tactics and other fraudulent intentions. The influencers in the market or large ticket size investors do not get to swing the market as per their will. And due to these value driven crypto investments, perhaps soon no more shall it be referred to gambling. 

## Risk vs Reward

Composable blockchain networks have enabled interesting combinations of various crypto assets which help create a safer crypto environment. Swaps, options and a few other derivatives have been engineered to mitigate the risk. Crypto structured products can help achieve the alpha, beat the market for best return. Risk adjusted, high yielding crypto structured products with decentralised on chain management certainly is the way forward for a sustained growth in crypto wealth. 

## Conclusion

Recently, value driven models in crypto have captured the attention of investors. It is a shift towards a more sustainable model. Besides, Web3 offers a plethora of opportunities for not only investment into crypto structured products but also allowing alpha creators to design their own. These DeFi projects have a [governance model](https://www.aarna.finance/aarna-dao.html) that selects the best of all structured products through voting. This is a space contributed and shared by web3 minds, alpha creators, and other crypto investors. Certainly it opens up scope for more reliable, less volatile and value driven crypto structured products to enter the market.


Crypto Structured Products are enabling high quality risk adjustment and high returns for investment. How do they contribute to value driven investment in crypto ? Read to know more

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Crypto Structured Products are certainly the way forward to create a less volatile investment pathway and democratise the crypto investment space.

24 January 2022

2 min read

What are NFTs?

The growth of NFTs

The Challenges and Drawbacks of NFTs

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