How Can a “Basket” of Illiquid NFTs Be Used to Create a More Liquid Derivative Product?

A "basket" of illiquid NFTs involves pooling multiple unique tokens into a single smart contract (a vault). The vault then issues a fungible ERC-20 token that represents a proportional share of the entire basket's value.

This fungible token is highly liquid and can be used as the underlying asset for a derivative contract. The derivative's value is based on the aggregated, diversified value of the basket, effectively transforming multiple illiquid assets into a single, tradable, liquid financial instrument.