A fractional NFT is created by dividing a single NFT into smaller, equal parts, which can be claimed by multiple individuals as their own. This is accomplished through the use of a smart contract that generates a fixed number of tokens that are connected to the indivisible NFT. These fractional tokens represent a percentage of ownership in the NFT and can be bought and sold on secondary markets. In this way, a fractional NFT allows multiple people to own a piece of the same NFT.
What are NFTs? Why Fractional NFTs are important?
NFTs (Non-Fungible Tokens) are unique digital assets that are stored on a blockchain. They represent ownership of a unique item, such as a piece of art, a collectible, or even a tweet. Because they are stored on a blockchain and are unique, they can be bought, sold, and traded like other forms of cryptocurrency.
Fractional NFTs are important because they allow individuals to own a portion of an NFT, rather than the entire asset. This can make it more affordable for people to own a piece of an NFT, as the cost is spread out among all the owners of the fractional NFT. It can also make it easier for people to sell their ownership in an NFT, as they can sell just their portion rather than having to find a buyer for the entire NFT. This can help increase the liquidity of NFTs and make them more accessible to a wider range of people.
Crypto investors can own a portion of a large pie thanks to fractionalization, with minimal to no risk of being taken advantage of. The idea is comparable to having stock in a corporation. Small- as well as mid-tier investors, can now own NFTs as opposed to merely whales with large bank balances.
Let’s understand the concept of fractional NFTs in detail.
Understanding Fractional NFTS
A fractional NFT is a group of fungible tokens linked to a whole or a group of NFTs (e.g. various CryptoPunk NFTs). As the name implies, it suggests evenly shared ownership of the NFT.
When an NFT gets fractionalized, the actual NFT is locked away in a safe, and a finite number of fungible tokens are created to signify ownership of the fractionalized NFT. Using fractional NFT platforms like fractional.art, such fungible tokens can indeed be purchased. They can also be sold on secondary marketplaces like Uniswap. Fungible tokens are also produced by some NFT projects. These tokens don’t signify a portion of the collection’s ownership.
Use Cases Related To Fractional NFTS
Fractional NFTs & Real Estate
By substituting mediators using smart contracts to facilitate a quick and secure transfer of ownership, NFTs can substantially accelerate the process of purchasing real estate.
Other significant advantages of turning a real estate asset into an NFT include immediate ownership resolution and a streamlined transaction process. Additionally, since the ownership, as well as rights history, could be directly recorded on a blockchain, it is typically quick and simple to verify transaction information.
Fractional NFTs & Metaverse
As the idea spreads, we might expect to see a huge rise in support for initiatives involving the metaverse. Fractional NFTs can indeed be utilized to enable conglomerates, groups of investors, and even solitary buyers to band together and purchase digital assets akin as virtual land as well as other types of virtual assets well within virtual world.
Fractional NFTs & Gaming
Most play-to-earn crypto games let you buy, trade and own a variety of in-game items, including NFTs. By engaging in these fractionalized shares, gamers in these online games can combine their resources as well as exchange expensive in-game items.
Axie Infinity, an NFT-based online game, is already investigating the practicality of fractional NFT transaction by providing fractionalized shares of totally rare Axies, among its most popular in-game NFT assets.
Fractional NFTs & Arts
The obvious one is digital art, and fractionalizing a work of real-world art is not at all hindered. The only remaining uncertainty is whether this invention would be accepted by the extremely conservative market and whether it would create more issues than it’d address. In theory, real-world art would also enjoy all the advantages mentioned above, such as improved liquidity and democratization.
Fractional NFTs Compared to Traditional NFTs
Fractional NFTs represent a portion of ownership in a full NFT. An NFT is a single unit that cannot be split. An Fractional NFT represents a portion of the entire.
Furthermore, fractionalization can be reversed. The investor can trade his shares of the main NFT as they like thanks to the smart contract’s buyout option. When a holder of an F-NFT transfers their share back to that same smart contract, it starts a buyback auction that lasts for a set amount of time. During that time, the other holders may decide. If the buyout proceeds, the fractions are returned back to its smart contract and the buyer acquires actual possession of the NFT.
Advantages you get for fractionalizing NFTs
High liquidity
NFTs have value since they are uncommon. They are nonetheless less liquid as a result than many other trading digital assets. Due to its ability to allow new investors to possess assets collectively, Fractional NFTs increase liquidity in the NFT market. The quickest and most efficient way to sell pricey NFTs is through fractionalization. Therefore, you can fractionalize an expensive NFT into as numerous components as necessary to achieve the desired degree of accessibility if you own one and are having trouble selling it. NFTs are now more enticing to investors thanks to fractionalization, which has also successfully addressed the liquidity issue this asset class was having.
Curator rewards
If the NFT owner divides their resource into divisions, the curator fee will be paid by the NFT platform of the preference. This fee has a threshold to discourage overpricing, but the proprietor is allowed to choose and change it.
Successful price discovery
NFTs can efficiently find their prices thanks to fractional NFTs. The method by which a marketplace chooses the acceptable value for an asset is known as price discovery. Pricing newly formed NFTs and NFTs with little to no trade history is typically challenging.
By enabling the division of an NFT into several sections, which may then be made available to the market for bidding, fractionalization facilitates the price of NFTs. This aids in determining an NFT’s price depending on market demand. As a result, fractional NFTs provide a rapid method for determining the valuation of rare and special NFTs.
Related NFT posts:
- NFT Staking: What Does It Mean and How Does It Work?
- What are NFT Scams?
- NFT Scammers Are Just As Creative As The Artists Themselves
Final Thoughts
Although fractional NFTs are still in their infancy, it appears that they will become the next big thing in the ever-expanding crypto market. Greater liquidity is made possible by NFT fractionalization, opening up an infinite number of investing strategy options. By allowing access to a much larger pool of potential investors, it ensures that Fractional NFTs will drive the upcoming wave of monetizing of digital assets. As the NFT industry becomes more accessible, fractional NFTs may be the next development to keep an eye on. Fractional NFTs are an option to consider if you’ve been admiring a specific NFT collection but were hesitant to buy due to the exorbitant cost.
