Alternative methods for NFT fractionalization

The recent “NFT summer” induced strong demand for fractional NFT ownership. NFT fractionalization facilitates a liquid market that enables quicker price discovery and instant valuation and democratizes ownership of scarce, high-end NFTs that carry historical or cultural significance. The Block Research has recently explored various mechanics behind existing fractionalization protocols.

To recap, NFTs can be locked up in smart contracts (aka vaults) to create fungible tokens (aka shards) that are “backed” by the locked NFTs. But how can one warrant that the shards derive financial values from the underlying NFTs? Collateral-backed tokens do not necessarily track or uphold their collateral values if designed improperly.