NFT Financialization

One major limitation to NFTs is that – like physical assets such as traditional art, baseball cards, sculptures, etc… – they aren’t very liquid.

Fungible assets such as the US dollar, Ethereum or Bitcoin are extremely liquid because they have tens of thousands of potential buyers and, as such, can be quickly traded on almost any marketplace. Unfortunately, non-fungible assets do not have that luxury because – by definition – they are one-of-a-kind.

As such, whether you are selling a Picasso, Rodin, Honus Wagner baseball card, X-Men #1 or Mutant Ape Yacht Club #26044, you need to find a single buyer who wants to purchase your particular piece.

Fortunately, NFTs offer several paths to liquidity – some of the more common are:

• Borrowing and Lending: Platforms such as NFTFi allow NFT holders to use their asset as collateral to borrow money, while other platforms allow users to rent their NFTs to others. While renting NFTs may sound strange at first glance, it’s quite common in Play-to-Earn gaming where purchasing the assets to play some games can cost hundreds to thousands of dollars.

• Licensing: Like art, music or intellectual property, NFTs can be licensed. For instance, a user could pay to stream a music NFT and the holder of an avatar such as a Cryptopunk could charge a royalty to Taco Bell for its use in a commercial.

• Fractionalization: Platforms such as Fractional allow NFT holders to issue tokens that represent their asset and sell these tokens to multiple users

The added benefit of these strategies is that they allow users to continue to hold the underlying asset while reaping the financial rewards.

Let’s take a deeper look into each of these categories 👉