DeFi as a Booster for NFTs

Utilizing DeFi protocols to financialize NFTs can solve many challenges faced by NFTs, as detailed below:

Accessibility

Since each NFT is by definition unique, buyers require specialized knowledge about specific assets to make informed buying or selling decisions. Additionally, the scarcity of such assets drives prices to levels often beyond the reach of retail investors. These two factors raise the entry barrier for new buyers in the NFT market and hinder value accumulation for NFTs. Given that part of an NFT's value derives from its underlying community, restricting access for long-tail buyers makes it harder for NFTs to achieve widespread network penetration. DeFi protocols lower the capital and knowledge requirements for participating in the NFT market, attracting more retail investors.

Liquidity

A liquid market formed around a specific NFT with both buyers and sellers enables better price discovery, as it increases the trading velocity of NFTs in secondary markets (i.e., higher trading volumes lead to a more accurate perception of an NFT's fair market value). This allows sellers to better monetize their creations and makes it easier for new buyers to enter the market since they can exit their investments with ease.

Utility

While ownership and provenance are two key attributes that permissionless cryptographic networks provide to NFTs, their value proposition doesn't fully resonate with retail buyers. DeFi protocols can enhance the utility of NFTs (e.g., cash flow, content, and experiences), making NFT ownership more appealing to mainstream users.