When people see today’s topic, their first reaction is often “profile pictures,” “artworks,” “limited collectibles,” “monkey pictures,” and so on. At the same time, a lot of questions will come up: “Isn’t an NFT already a kind of financial asset?”
Maybe you, reading this article now, just bought someone’s NFT on XXX today. As you watch the price of that NFT fluctuate, you feel a strong financial attribute in it.
But do you really understand NFTs? In the beginning, they did not come with financial attributes – they came with artistic attributes. What you’ve been seeing in terms of price going up and down is more about the value fluctuation of the artwork itself, rather than financial value.
What we are talking about today as “financial assets” is more about understanding questions like:
How can NFTs be used as collateral?
How can NFTs be used to borrow and lend?
How can NFTs be fractionalized?
How can NFTs provide liquidity?
How can NFTs be priced?
How can NFTs become yield-bearing assets?
In other words, when NFTs fully shift from being a “cultural product” to a “financial product,” we need to understand this trend, because it is rapidly becoming a mainstream narrative.
This is exactly today’s topic: NFT-Fi (NFT Financialization) – how NFTs are gradually evolving from collectibles into “financial assets” that can be traded, borrowed against, and used for derivatives.
To help you grasp the entire framework in one read, this article will go from underlying logic to mechanism principles, from market demand to future trends, and explain everything in one go.
Let’s start with what NFT-Fi actually is
The financialization of NFTs is essentially a transformation: assets that originally only had “uniqueness” gain price discovery, financial attributes, and capital efficiency through protocols, models, and liquidity design.
In other words:
NFTs that could originally only be bought and sold → can now be used like assets.
NFTs that originally had no yield model → can now generate interest, returns, leverage, and derivatives.
NFTs that originally just sat in your wallet as an avatar → can now become staked assets, collateral, or liquidity positions.
One-sentence summary: NFT financialization is about turning NFTs into assets that can be used inside DeFi.
So why is this becoming a trend? The reason is very simple:
1. The financial potential of NFTs goes far beyond simple trading
Within the overall NFT market, pure collectible trading is only a small part. The real long-term, sustainable, and scalable market lies in:
Financial services
Asset management
Collateralized lending
Rights and yield derivatives
Liquidity protocols
Asset pricing models
It’s like houses: the house itself is a vessel of value, but the mortgage market is the truly massive market.
It’s the same with NFTs: holding them is only the beginning. Using NFTs in financial activities is where the real market lies.
2. NFTs are inherently asset-like
The asset nature of NFTs comes from:
Scarcity
Tradability
Price volatility
On-chain ownership and provenance
As long as something satisfies these characteristics, it has the basic conditions to be financialized.
3. DeFi’s growth needs new forms of collateral
For DeFi to continue growing, it needs more “collateralizable assets.” But mainstream collateral types (like ETH and stablecoins) have limited room to expand. NFTs are naturally suitable as a new source of growth.
4. NFT players and DeFi players overlap heavily
People who talk about NFTs every day are also among the most active asset users. Providing financialization services is essentially directly serving this group of high-value users.
The core underlying logic of NFT financialization (must understand)
The essence of NFT financialization cannot be separated from two concepts: Price Discovery and Capital Efficiency.
1. Price Discovery
Before financialization, NFT prices were determined by:
Rarity
Narrative and hype
Social/media attention
Trader sentiment
KOL influence
Project team actions
This is a classic “unstable market pricing” structure. Financialization makes prices more predictable by introducing:
Discount rates implied by lending markets
Liquidity depth in LP pools
Trading demand in derivatives markets
Pricing models from oracles
Put simply: the price of NFTs is moving from “subjective perception” to “objective pricing.”
2. Capital Efficiency
Before financialization, an NFT:
Could only be held after purchase
Tied up capital
Could not generate yield
After financialization, an NFT:
Can be used as collateral
Can be borrowed against
Can be used to sell options
Can be fractionalized
Can provide liquidity
Can be used with leverage to go long
In other words, an NFT is no longer the “end-point asset” – it becomes the starting point of capital usage. This is the real core of the ecosystem moving from 0 to 1.
The four main tracks of NFT financialization (complete structure you must know)
NFT financialization is not a single product. It is a complete system that can be broken down into four primary directions:
1. Collateral & Lending
This is the basic structure underlying everything in NFT financialization, and the logic is straightforward:
You own a very valuable NFT. You don’t intend to sell it, but you still want to get liquidity from it. What do you do?
You, being clever, pledge this NFT to a protocol. The protocol lends you ETH or stablecoins based on the NFT’s value, while the NFT is locked in the protocol until you pay back your debt.
This process solves a critical problem: an NFT is an asset, but previously you couldn’t “extract liquidity without selling.” Collateralized borrowing solves exactly that.
2. NFT Liquidity
NFTs are naturally illiquid, because each one is “unique.” But financialization needs exactly the opposite – products must become “liquid.”
So how can a unique product like an NFT gain liquidity? There are many ways, including but not limited to:
AMM pools
Tiered pricing by NFT ranges
Floor-price-based NFT pools
Batch NFT liquidity pools
Automated order book depth
NFT vaults
The essence of all of these is to transform “unique assets” into “tradeable assets.”
3. NFT Fractionalization
Many NFTs are extremely expensive. At their peak, some were selling for tens of millions of dollars, and even now, after years of cooling down, valuable NFTs still have very high entry barriers.
So NFT fractionalization appeared: taking an NFT that is too expensive to buy outright and splitting it into many “shares,” so more people can participate – similar to stock splits or fund units.
Fractionalization solves two problems:
High-priced NFTs are impossible to access → fragmentation lowers entry barriers
Pricing is hard to discover → the market can price the fractions via trading
It turns NFTs from a game only a few can play into something that many can participate in.
4. NFT Derivatives
Once NFTs have a sufficiently robust price foundation, derivatives can be built on top:
NFT options (calls and puts)
NFT perpetual contracts
NFT indices
NFT volatility indices
NFT swap contracts
NFT shorting tools
These derivatives turn the NFT market from “one-way trading only” into a market where you can:
Go long
Go short
Hedge
Arbitrage
Use leverage
The range of strategies becomes very rich – and NFTs are completely transformed into a financial market.
Let’s break the system down and explain each key module in simple terms
1. NFT Valuation Systems
Financialization requires accurate pricing, the “objective prices” we mentioned earlier. But NFT prices are hard to predict because:
Rarities differ
Each individual piece is unique
Liquidity is extremely poor
Trades are discontinuous
To address these issues, NFT valuation systems have emerged, primarily using:
Floor-price-based models
Rarity-weighted models
Polynomial regression prediction models
Machine learning models
Multi-market weighted pricing
Aggregated NFT oracle feeds
The ultimate goal: establish a standard price that can be used for lending, trading, and collateralization.
2. Liquidation Mechanisms
Financialization must have a liquidation system; otherwise, security cannot be guaranteed. NFT liquidations are much harder than fungible token liquidations because non-fungibility makes each NFT’s value different.
The most direct consequences are: difficulty in liquidation and extreme price swings. So we get mechanisms like:
Collateralization ratios
Safety margins
Auction-based liquidation
Offsetting liquidation via LPs
Batch liquidation
Delayed liquidation mechanisms
Overcollateralization buffers
This system ensures NFT lending markets don’t end up with large masses of bad debt.
3. NFT Liquidity Pools
Liquidity is the core attribute of any financial product – NFTs are no exception. That’s why NFT Liquidity Pools are indispensable. Current forms of NFT liquidity pools include:
Single-sided NFT pools
AMM automated market-making pools
NFT/ETH trading pairs
NFT floor-price futures pools
Synthetic NFT asset pools
Through these pools, we can build:
Automated trading
Deep order-book-like liquidity
Stable price ranges
Swap and exchange mechanisms
NFT-to-NFT trading
They make the NFT market tradable and give NFTs continuous pricing.
4. Synthetic NFTs
To allow NFTs to be used as collateral without actually transferring the original NFT, synthetic NFTs were created. They have several uses:
Use collateral to peg and track the NFT’s price
Mint “equivalent NFT tokens”
Let NFTs trade like ERC-20 tokens
Synthetic NFTs are the “ultimate weapon” for NFT liquidity in the context of financialization.
Five key pain points NFT financialization is solving
The NFT market originally had many problems:
Poor liquidity
High transaction costs
Violent price swings
No ability to borrow/loan
No way to short or hedge
Financialization addresses these one by one:
1. Poor liquidity → AMMs and pools provide continuous liquidity
NFT financialization moves NFTs from peer-to-peer trading to pool-based trading.
2. Hard to sell listings → liquidity becomes constant
You no longer need:
A specific buyer
A manual listing
To rely on “getting lucky” to find a match
3. No way to hedge risk → derivatives provide hedging tools
You can:
Short by selling NFT liquidity tokens
Use NFT put options to hedge downside
Use perpetuals to short similar assets
4. No yield → DeFi-style structures provide returns
You can even:
Pledge an NFT as collateral to earn interest
Deposit into NFT LPs to earn fees
Go long/short and earn spread
Rent out NFTs to earn rental income
Sell certain rights of an NFT to earn income
This transformation is crucial: NFTs are no longer just “things you spend money on,” but become assets that can generate money.
Eight major application scenarios of NFT financialization
NFT collateralized lending: obtain liquidity without selling the asset.
NFT automated market making: easier trading and more stable pricing.
NFT fractionalization: lower entry barriers and broaden participant base.
NFT options and perpetuals: provide hedging, leverage, and arbitrage markets.
NFT asset management: funds, portfolio management, index-based investing.
NFT rentals: game NFTs and others can be rented out to generate profit.
NFT synthetic assets and indices: treat NFTs as “index-like assets” for investment.
New financial products from NFT + DeFi: yield strategies, leveraged products, LP positions, structured portfolios, and more.
Future trends in NFT financialization
Trend 1: NFTs will become fully DeFi-native
Collateral, lending, leverage, options, and derivatives will become basic infrastructure.
Trend 2: NFTs will merge with on-chain identity (DID)
NFTs representing user identity will help determine credit scores and borrowing limits.
Trend 3: “NFT = asset certificate” will become the default perception
Membership cards, real-world assets, in-game items, tickets, certificates – all will become NFTs that can be financialized.
Trend 4: Composable financial products will emerge
NFT + LP + lending + shorting – complex financial structures will become mainstream strategies.
Trend 5: NFTs will move from “speculative market” to “structured financial market”
They will gain a mature financial ecosystem, like stocks and bonds already have.
In closing
In the past, when you bought an NFT, all you could do was wait for the price to rise.
Now, when you buy an NFT, you can:
Use it as collateral
Borrow against it
Rent it out
Earn yield
Hedge risk
Use it for portfolio hedging
Join derivatives markets
Add leverage
Lend it out to others
Provide liquidity
Receive liquidity mining rewards
Obtain portfolio-level returns
NFTs are no longer just “digital collectibles” – they have become carriers for on-chain assets.
And NFT financialization is exactly about enabling every on-chain asset to be:
Usable
Composable
Liquid
Borrowable
Yield-bearing
This is a key piece in the true maturation of the Web3 asset ecosystem.
