The Complete Beginner Guide To NFTs | Part 7 | All NFT Utilities Explained

9 min readSep 9, 2022

All NFT Utilities Explained — How Do Liquidots Provide Access to NFTs as Collaterals?

In this complete beginner’s guide, we will answer all the following questions and always keep it up-to-date, so make sure you bookmark this guide to your browser:

For people that are only discovering NFTs now and looking to invest their hard-earned money into a project, a great way to decide which NFT project they should mint and invest their money in is by looking at the utility that the NFT and the project ‌provide.

In this part of our guide, we’ll describe what precisely an NFT utility is. What are the different types of utilities an NFT can provide you with? And how Liquidots can offer you access to NFTs as a form of collaterals.

What is an NFT Utility?

NFT utility is the value or offer that’s attached to an NFT. It is simply any benefit or use case of owning an NFT.

It can be described as the ‘usefulness’ of an NFT project.

An NFT utility includes digital assets, physical goods, a service, access to events, memberships, and other perks the creator wants to supply to their consumers.

Why Is Utility NFT Important?

The popularity of NFTs has been on a steady meteoric rise. They are, however, at best, a digital asset. Because no one asset has a real-world application or utility, there has been legitimate and recurring concern about the NFT bubble.

NFT prices are frequently arbitrary, resulting in events and celebrities making more money than others. It’s also not entirely about art, as it should be. Before the emergence of NFT 2.0, NFTs were compared to the DotCom boom of the 1990s.

NFTs had to adapt to survive. NFT utility performs an essential purpose by bringing value and utility to NFTs with real-world applications. Including utility will also assist in democratizing the process, narrowing the gap between celebrities and commoners on the Metaverse. NFT 2.0 will also assist the world in surviving the web 3.0 bubble-burst of arbitrary valuations.

The Ultimate List of NFT Utility

While there are many benefits and use cases of owning an NFT, some of the most common utilities NFTs provide include:

Access or membership perks

One of the most popular perks owning an NFT can provide you with is an invitation to exclusive events and parties.

These NFTs can be used as tickets to purchase exclusive merchandise or get into exclusive events.

Some projects have already used utility tokens to provide holders with exclusive entry to closed-door events. Because each NFT is unique, event organizers may check these digital VIP tickets just like traditional tickets, without danger of ticket fraud.

The most popular example of an NFT project providing this utility is the BAYC NFT project.

Another popular NFT project that provides this form of utility is the Digital Nomad Island NFT. It is an NFT access token to a network of private islands for global-minded investors, entrepreneurs, artists, and creatives known only to its holders.

VeeFriends is another viral NFT project where the NFT holders can get access to private parties, dinners, and meet-ups with Gary Vaynerchuk.

2. AirDrop

A utility some of the NFT projects provide is the airdrops of freebies. This means the project rewards the owners of the NFTs with gifts like other NFTs, Tokens, and coins.

3. Breeding

Some NFT projects provide the ability to breed your NFT as a utility.

Breeding NFTs is a technique that allows two breedable NFTs to mate and give birth to a new NFT progeny. Consider two creatures mating to generate offspring to demonstrate how the system works.

NFT project developers and startups employ NFT breeding to create long-term value for their NFT collectors. Rather than depending on the ever-changing value of NFTs based on public sentiment, project designers go above and beyond to develop practical approaches and methods for collectors to profit from their NFT purchases.

Breeding NFTs to create a new NFT (which is usually considered more precious and distinctive) is a significant way for NFT collectors to profit from their initial investment. When a project uses NFT breeding to provide usefulness for their NFTs, some or all of the NFTs in the game collection become breedable.

An example of breeding used in a project is Axie Infinity.

4. Burning

An exciting utility some NFT projects provide is the ability to burn the NFT you own. Burning an NFT means destroying the NFT. There are multiple ways to burn an NFT, but the simplest way is to send it to a wallet no one owns.

NFT projects that provide burning as a utility usually reward the owner for burning their NFT.

An excellent example of an NFT project that provided burning as a utility is the Space Punk Club NFT project. Members of the project get airdropped an elder for every four ghosts they burn.

5. Decentralized Autonomous Organization (DAO)

DAO is a community-led organization that allows members to vote on their entity’s direction.

Collector DAOs enable numerous users to control a portion of an NFT, allowing smaller NFT traders to participate in more expensive projects.

A DAO allows NFT founders and community members to collectively decide on the future of an NFT project.

DAOs may also be able to assist young NFT developers in building a community.

DAOs have been around for a long time and have a wide range of intriguing uses. They can be a valuable tool in assisting the growth of existing and emerging NFT projects in the NFT space.

6. Ethereum Name Service

ENS is the web 3.0 of domain name service.

The Ethereum Name Service is a decentralized and customizable naming system that is built on the Ethereum blockchain. ENS is used to convert human-readable names like “James.eth” to a machine-readable identification format that may be used to generate Ethereum addresses, content hashes, metadata, and other cryptocurrency addresses.

Even though ENS doesn’t seem like an NFT, it is categorized as such. Just like in domain squatting and flipping, there is value in owning metaverse.eth or wealth.eth.

To buy an ENS, you’ll need a DeFi wallet.

7. Fractional Ownership

Fractional ownership of an NFT simply implies that a whole NFT has been divided into smaller fractions, allowing different numbers of people to claim ownership of a piece of the same NFT. The NFT is fractionalized through the use of a smart contract that generates a certain number of tokens that are tied to the indivisible original. These fractional tokens provide each holder with a percentage ownership stake in an NFT and may be bought or exchanged on secondary marketplaces.

This is one popular way to liquidify an NFT. One massive benefit of buying a fraction of an NFT is that you can get into a blue chip NFT project by investing less and taking lesser risks.

This way you can get the benefit of the NFT project. For example, if that NFT increases in its value, so do your fraction of that NFT.

8. Gaming or Play-to-Earn

Play-to-earn NFT gamers can earn money by playing NFT games. A player is often rewarded with tokens and, on occasion, NFTs, earning more the longer they play. Tokens are frequently required as part of the game’s crafting process.

Axie Infinity has swiftly become one of the most well-known earn-to-play games.

9. Launchpad

Launchpad is a place where new projects can be listed in an existing project to gain exposure and recognition.

New projects will reward existing community members with a percentage of their tokens and early access to NFTs, among other benefits.

It’s a win-win situation for all parties: where the new projects get exposure and visibility from an existing community, and the community gets in on amazing projects early.

Check out space punk club again, where their members can obtain privileged white list access to projects with no gas wars and special mint prices.

10. Merging

The term is self-explanatory; you take two NFTs and merge them into one NFT.

This process is prominent in gaming projects. The Save the Martian project is one example. They have a merge machine that allows holders to combine two Martians. Holders can select desired qualities from each martian and combine them to build their ideal martian. As a result, scarcity grows with time, and the collection becomes deflationary.

11. Physical Items

Some NFT projects even provide physical items as a utility for holding and owning their NFT.

RTFKT is a company that allows you to redeem a physical pair of sneakers if you own a digital version of the sneaker as an NFT. This idea has been revolutionary because of its physical world application, which is why the RTFKT company has been bought by NIKE.

12. Staking

This entails storing your NFT in your wallet for daily rewards. Staking your NFTs is a way to put your unique token to work on the blockchain. NFTs are frequently linked with digital images, such as the Bored Ape Yacht Club collection, although they can be any object, from digital art to video files to gaming assets. Staking nonfungible tokens entails attaching them to a platform or protocol. Staking rewards are given in exchange for this action. You can generate more money while still owning the NFT this way.

13. Utility Token

It is a token or reward you earn for owning an NFT in a project.

It is a currency or incentive earned as a result of owning an NFT in the project.

There are other methods to use them, and it all depends on how the community wants to use them. Members can be compensated in tokens for completing specific activities or staking their NFTs. Tokens can be used to purchase products from the community. Tokens can be converted into other cryptocurrencies, such as Ethereum and then cashed out. CyberKongz is one project that makes excellent use of this function. Their token is a banana, and one banana is valued at up to 122 dollars. You can get ten bananas per day simply by holding their NFTs.

14. Collaterals

This is not really an NFT utility but a utility for NFT.

There are certain websites and places that allow you to use your NFT as collateral

For example, you can use your crypto punk as collateral and get a loan. What you do with the loan is entirely up to you.

Liquidots is one such platform, as explained below.

How Do Liquidots Provide You Access to NFTs as Collaterals?

Liquidots is a Web 3.0 platform that offers Web 3.0 banking and financial solutions.

It is a P2P decentralized lending platform for NFT holders, collectors, liquidity providers, and lenders.

If you want to keep your NFT but need liquidity quickly, or if you want to invest your capital and earn interest, we have a solution for you!

Owners of NFTs can use Liquidots to put their NFTs up as collateral, and lenders can provide them with a loan.

It is up to both parties (borrower and lender) to agree on loan terms, such as what the principal amount should be. How long should the duration of the loan be? And what should be the interest rate?

The NFT is locked in a smart contract as collateral as soon as both parties agree on the terms and the borrower receives his loan. The borrower then repays the lender the principle plus interest rates based on the agreed-upon terms. If he defaults, the lender receives ownership of the NFT.

Loans are instant, secure, and trustless with our smart contracts.

It’s a straightforward, efficient, and open process that benefits all parties.

Final Thoughts

As you can see, buying an NFT provides a wide range of utilities and incentives. It is common to find NFT projects that provide more than one utility.

It is not difficult to add functionality to an NFT, and you should expect it from a creator or project.

NFTs with real-world applications are those that keep their value and deliver an ROI. Please don’t invest in a project merely because it has these utilities.

There are a lot of inflated initiatives right now, and many of them will fail in the early phases.

This is why doing your own research is crucial in the NFT world.

Keep In Mind, Only invest in a project if you know:

How do they plan on using these utilities?
How are they going to gamify the token economics? And how are they going to implement it?
It would help if you also researched the founders’ overall visions.
Before investing in an NFT project, you should DYOR about the project’s founders.
The founders must be competent, honest, and committed to the project’s success.
You can also look at the creators’ previous work to learn more about their expertise and competency.