Craig Russo
5 min readJul 7, 2021


Non-fungible tokens (NFTs) have had a blockbuster year — a coming-out party driven by high-profile auctions and mainstream brand adoption that has undoubtedly cemented the asset class as a true alternative to traditional cryptocurrencies.

This initial stage has been quite rudimentary and interest in the market has largely been siloed to the marketplace level. We’ve gotten quite comfortable with buying and selling NFTs, but what comes next?

We’re collectively pointing to the next layer deep — utility, or what can actually be done once an NFT is acquired. Utility can range from NFTs representing in-game assets or functioning as metaverse-level identifiers to even more robust use cases where an NFT does work as a productive asset (i.e., the PGFK).

The latter concept is important, as the transition of NFTs from representative into productive assets will be one of the building blocks for a new segment of decentralized finance (DeFi).

Despite the concept being thrown around as a near-certain next step for the asset class, there are serious limitations plaguing NFTs that I believe will hinder any real DeFi utility at this stage. Namely, illiquidity and over-centralization.

I’ll touch on both of these areas briefly.


It’s simple, NFTs by their definition are illiquid. While this has created some substantial investment opportunities for early entrants, the reality is that the level of illiquidity in comparison to the larger crypto space will continue to be an inhibitor of growth.

Solutions today, i.e fractionalization, are fundamentally flawed — most platforms are unknowingly creating securities while simultaneously failing to actually solve the problem. By making an equally illiquid fractional ERC-20 version of an NFT, you are just adding complexity and fees.

What will make fractionalization viable is the ability to aggregate the output layer, which would require unification of valuation — this is not possible today as there is no methodology for real-time appraisal of NFTs, especially those within a single contract. Polyient is addressing the appraisal issue with Rate Network, a new decentralized pricing and rating protocol for NFTs and other discrete assets.

That being said, what problem are you actually solving with fractionalization? Anecdotes aside, there’s never been any actual market demand for multiple people owning a single NFT — it just doesn’t need to exist as there are a lot better ways to allow a broader group of users to gain exposure to a single asset or basket of assets. Chalk fractionalization up to an interesting experiment that is ultimately irrelevant.

In my view, the illiquidity of NFTs will be solved via efficient pricing engines coupled with a fundamental emergence of productive NFTs — attach cash flows to NFTs and you can bring liquidity to the market. NFT DeFi will look like this — and more is needed to be built before it can stand up on its own. Most of the assets you see today will never be liquid or used in DeFi protocols.


It’s clear that the NFT space is suffering from over-centralization.

There are two truths here -

  1. Application-level asset interoperability is a pipedream that won’t work this cycle. One of the original missions of Polyient Games was to function as an interoperability layer in order to create a more unified blockchain gaming ecosystem to the benefit of all participants. The reality here is that no group truly wants to lose full control of their economies or even in-app experiences — anyone who tells you otherwise is bullshitting — making our original mission an inherently uphill battle.
  2. The majority of the methods of interacting with NFTs are conducted on entirely centralized platforms. Notice I didn’t say “custodial,” as we’ve moved well enough away from centralization in that form. I mean that most platforms you use to buy and sell NFTs have highly centralized economics where incentives are entirely misaligned between the platform provider and the end-users.

Truth #1 is hard to solve and frankly not one I’m interested in anymore — best of luck to anyone trying to build towards a Ready Player One future. I believe Truth #2 is currently the reality that is impacting the NFT market the most.

The reasoning being that the centralization of the economics at the top of the asset cascade has made DeFi in the NFT space a near-impossibility. Think: would fungible DeFi exist in its current form if we never moved off Binance and Coinbase to Bancor, Uniswap, and Curve? Absolutely not.

The emergence of the decentralized liquidity protocols unlocked the ability for everyday users to earn fees off their assets in a totally decentralized way. These top-of-funnel protocols opened the door to an entire generation of productive DeFi systems that leverage the basic actions of swapping tokens and paying fees to liquidity providers.

That is why the current landscape of centralized, VC-backed NFT marketplaces, where fees are collected by a single entity, will not survive except for use cases that cater to the most mainstream of users.

We need decentralization at the marketplace level, where the actual market participants are the beneficiaries of the system. This unlocks the next stage for NFTs, and provides avenues for a number of interesting protocols that will help the asset class move from representative to productive.

Now, you might be asking, what about NFT lending protocols? Surely those could fill the role similar to what has happened with fungible lending driving entire segments of DeFi (Maker, Compound, etc. are [even more so] top-of-funnel protocols like Bancor/Uniswap).

The core issue here comes back to the illiquidity and pricing problems. It’s not viable to leverage an asset that is NFT-level illiquid as a form of collateral. With regards to pricing, given that there is no oracle layer that allows for third-party appraisals (like the one Rate Network is building), NFT DeFi is forced into a highly inefficient peer-to-peer system.

In short, decentralization of the marketplace layer is the necessary step needed to unlock NFT DeFi.

So, What Next?

In the coming weeks, we will introduce the next phase of Polyient G̶a̶m̶e̶s̶, which will include a major rebrand, introduction to new protocols we’ve been developing behind the scenes to address the DeFi limitations addressed above, and a consolidated tokenomics to reflect lessons learned from being active investors and market participants.

It’s time to empower asset holders.