NFTs Undergo Rapid Financialization, Report Finds

A new report reveals that the financialization of non-fungible tokens (NFTs) is rapidly progressing, with NFTs evolving in complexity and interactions, such as trading, lending, and borrowing, becoming more sophisticated. But many significant problems remain, from the reputational to the environmental.

The financialization of NFTs is continuing at a rapid pace, according to a new report from Reflexivity Research. The report, which does not intend to offer investment advice, outlines the growth of NFTs as financial products. It also offers a number of caveats.

NFTs: Pros and Cons

The popularity of NFTs has taken off. Especially with artists looking for ways to monetize assets. However, the report also highlights severe environmental consequences. With NFTs accounting for 30% of all Ethereum gas usage, these concerns are hard to dismiss and are likely to grow.

A number of market factors drive financialization. The report identifies the launch of BLEND as a recent step. BLEND (a portmanteau of the words “borrow” and ‘lend’) is an NFT loan platform. It allows users to take a mortgage out on their favorite blue-chip collections.

Reflexivity’s report also acknowledges the meteoric rise of the NFT marketplace Blur. Its launch in October 2022 aspired to fill a market gap by providing an institutional-grade UI/UX for spot trading. (Blur is also the owner of BLEND.)

Misunderstandings About NFTs

The general public mostly views NFTs as expensive JPEGs used for profile pictures. However, non-fungible tokens can introduce financial market dynamics to traditionally non-financial or illiquid assets. These include artworks, real estate, private equity investments, and film and media rights. 

NFTs do this by digitizing unique items and facilitating their trade on a blockchain.

“Revolutionizing the art market will require more than NFT drops. A new form of patronage is needed, one that alters the method of artist selection, the provision of financial support, and the commissioning and creation of art. Even these three necessary shifts may be insufficient,” Anthony Georgiades, co-founder of Pastel Network, told BeInCrypto.

“NFTs will vastly improve existing processes in the financial sector, such as within loan collateralization, insurance, and debt management, to name a few,” he said.

“In many cases, they eliminate much of the risk associated with borrowing and lending assets. Thanks to fractional NFTs, we’ll also see greater financial inclusion across a variety of investments, given that they lower the financial barrier to entry.”

Greater Financial Inclusion?

Some people vastly underestimate the technology’s applications. “I actually think [they] will make financial processes much more accessible and straightforward for all parties involved,” Georgiades continued.

The technology’s cheerleaders have often heralded NFTs as a revolutionary step that can open access to elite industries like art. Although, not everyone buys it. In fact, many are openly skeptical about the role that these tokens can play.

“Revolutionizing the art market will require more than NFT drops,” Mark Lurie, CEO of Shipyard Software and a director of The Foundation for Art & Blockchain (FAB), told BeInCrypto.

“A new form of patronage is needed, one that alters the method of artist selection, the provision of financial support, and the commissioning and creation of art. Even these three necessary shifts may be insufficient,” Lurie said.