A physical NFT is a token that stands for a real object, such as a trading card, a watch or a pair of sneakers. This guide explains the four ways projects connect a token to an item, the risks of each, and the questions to answer before you build or buy a physical NFT.
People also call these tokens "phygital" NFTs. In every design, a chip, a vault, a contract or an authenticator connects the token to the item. Buyers depend on that connection more than on the blockchain.
Why a token cannot see the object
A blockchain can prove which wallet holds a token. It cannot see a sneaker, a watch or a trading card. If the item is lost, swapped or sold without the token, the token still exists and records nothing about the change.
Every working design for an NFT for physical assets adds an outside link between the token and the item. The four models below use four different links.
Four models for physical NFTs
| Model | What links token and item | Suits | Main risk |
|---|---|---|---|
| Vaulted custody | A custodian stores the item and redeems it for the token holder | Small, valuable, graded goods such as cards and coins | The custodian fails, loses items or closes |
| Chip-linked product | A secure NFC chip in the item proves the item is present | Luxury goods, sneakers, art editions | Cheap chips can be copied, and chips can be removed |
| Burn-to-redeem | The token is a voucher that the holder burns to receive the item | Merchandise, prints, limited drops | Shipping costs, taxes and stock shortages |
| Legal claim | A company or contract holds the item, and the token stands for the claim | Real estate, fine art, other high-value assets | The claim depends on law, and fractions can be securities |
1. Vaulted custody
In this model, a custodian keeps the item in an insured vault, often after professional grading. The NFT gives its holder the right to withdraw the item, so holders can sell the token without shipping anything. When a holder redeems, the platform ships the item and burns the token.
Courtyard is an example. Users send graded cards to a Brink's vault, and Courtyard mints a matching NFT on Polygon for each card. Polygon's case study says the current holder can redeem the card after identity checks, and Courtyard then burns the NFT.
Everything in this model depends on the custodian's honesty, finances and insurance. Before buying, check who the custodian is, whether audits of the vault are published, and what the terms say about a platform shutdown.
2. Chip-linked products
The maker embeds a secure NFC chip in the product. Some chips hold a private key and sign a fresh challenge when a phone taps them. Arx's HaLo tags work this way: a web page in Chrome on Android or Safari on iOS can ask the tag to sign data with its ECDSA key. A valid signature shows that the original chip is present, and the app can then let the owner claim or check the NFT.
Cheap NFC stickers that only store a web address are easy to copy, so a chip-linked product needs a chip that signs with a key that cannot be read out.
Chip-linked products suit luxury goods, sneakers, art editions and merchandise, where the token works as a certificate of authenticity and keeps the ownership history when the item is resold.
3. Burn-to-redeem
Here the NFT is a voucher. The holder burns it to receive a physical item, such as merchandise, a print or a bottle of wine. Many projects also give a digital collectible that stays in the wallet after redemption. Music and fashion drops often use this model.
The smart contract for a burn-to-redeem drop is simple, and shipping, address collection, customs and sales tax take most of the work.
4. Legal-claim tokens
A company or a contract holds the item, and the token represents a claim on it, a model projects use for real estate, fine art and other high-value assets. The real estate NFT guide and the art tokenization guide cover those cases.
Design checklist for a physical NFT
- Authentication. Who checks the item before the token is minted, and where is the result recorded?
- Custody. Where is the item, who is liable for it, and which insurance covers it?
- Redemption. How does a holder get the item, what does redemption cost, and to which countries can the platform ship?
- Token state. After redemption, is the token burned, marked as redeemed in its metadata or kept as a record? Marketplaces must show a redeemed token clearly, so nobody buys a used voucher.
- Exit plan. Can holders still claim their items if the platform shuts down? The terms should say so in writing.
- Disputes. What happens if the delivered item does not match its description?
Lessons from brand projects
Many large brands launched phygital collections in 2021 and 2022, and several have since closed. Nike announced in December 2024 that it would close RTFKT, its digital sneaker and NFT studio. The Ethereum tokens stayed in holders' wallets, but the studio stopped building for them.
The collections that lost support were mostly digital items that needed the brand to keep investing. Projects where the physical item has value without the token kept more of their buyers, because there the token adds proof of authenticity or easier resale.
Where physical NFTs are used
- Vaulted collectibles, such as graded trading cards that trade as tokens while the cards stay in a vault
- Luxury authentication, where a chip and a token record a product's origin and owners
- Limited merchandise sold as burn-to-redeem vouchers
- Product passports, which record a product's origin, materials and repair history
The EU is creating demand for product passports. The Batteries Regulation requires a digital battery passport for electric vehicle batteries and industrial batteries above 2 kWh from 18 February 2027. The Ecodesign for Sustainable Products Regulation (EU) 2024/1781 sets the legal basis for passports in other product groups, which later rules will name. Neither law requires a blockchain.
The NFT e-commerce guide covers retail uses, and the fractional NFT guide covers shared ownership of expensive items, which is often treated as a securities offering.
Frequently asked questions
What is a physical NFT?
A physical NFT is a token linked to a real object through a vault, a chip in the item, a redemption voucher or a legal agreement.
Can an NFT prove a physical item is genuine?
Only with a secure chip or a trusted authenticator. The NFT records what the authenticator confirmed, and the chip proves later that the same item is present.
What happens to the NFT when I redeem the item?
It depends on the design. Most vault platforms burn the token when the item is withdrawn, while some projects keep the token as a digital collectible marked as redeemed.
Who is responsible if a vaulted item is lost?
The custodian and the platform are responsible under their terms and insurance. The blockchain gives no protection here, so read the terms before you buy.
Which blockchain suits physical NFTs?
Low-fee chains such as Polygon PoS or an Ethereum layer 2 suit most consumer goods, while some high-value single items use Ethereum mainnet because many collectors use it.