Fractional NFTs represent a single unit of ownership in an NFT. Fractional NFTs represent a new type of blockchain asset that can be created and stored on the Ethereum blockchain.
To much extent, they show similarity to ERC-20 coins but allow for more complex and customizable features. They can also be used to create complex smart contracts and dApps.
They can be used to represent assets such as stocks, bonds, or currencies and can be traded and used just like regular NFTs. Because fractional NFTs are a fraction of an underlying asset, they can have a higher trade value than a regular NFT.
They can also be used to represent assets that are not easily tradable, such as a company’s equity or a commodity’s future supply. They basically represent a fraction of an underlying asset.
Basically, you create a set of fungible tokens that depict an ownership stake in the actual NFT. These tokens are fungible and can be exchanged between different users.
Possessing X% of a company is equivalent to receiving an IOU from it. With blockchain technology, this IOU can be permanently recorded and verified, meaning it is more reliable and secure than traditional methods.
The process of fractionalization can be facilitated through the use of smart contracts. This process makes it easier for multiple people to share in the ownership of an asset without needing to go through a traditional process such as transferring ownership of the asset.
This allows for greater diversity and liquidity in the marketplace, which in turn helps to foster innovation and growth.
You can use the fractional tokens to make purchases on various marketplaces later and then exchange them for cash.
Can NFTs be divided into smaller units?
A non-fungible token is a digital asset that is not divisible and is non-fungible, meaning that it cannot be exchanged or used in the same way as other digital assets and is not easy to split into smaller units. This makes NFTs ideal for use in blockchain technologies, as they can be easily traded and used to represent assets or shares.
A Bored Ape NFT can not be divided into two parts the same way you can’t divide a Mona Lisa painting into two. Both the Mona Lisa and the Bored Ape are unique and cannot be divided into smaller parts. Each instance of the Bored Ape NFT is unique and cannot be divided into two.
Unlike regular tokens, which can be divided into smaller pieces, non-fungible tokens are unique and cannot be broken down into individual units. However, a workaround called fractionalization allows you to claim a stake in the actual Non-fungible tokens. This allows for more flexibility when it comes to trading and using the token.
A similar token standard was proposed to allow non-fungible divisible tokens on the Ether blockchain, known as ERC-864. This would have made it easier for developers to create new tokens and make them more accessible to the general public.
However, the idea didn’t seem to get very far. So, in order to divide non-fungible assets in a more equitable way, NFTs must be fractionalized.
How does this make NFT ownership accessible?
Some experts see great potential in NFTs and believe that their value will continue to grow in the future. People enjoy collectives like Bored Ape Yacht Club and Punks for their high market caps and the number of holders of these NFTs they’ve created.
These collectives are actually successful, with huge market capitalizations and a large number of members who have made significant money. Even collections on Solana, which are known for their high valuation and are typically valued at a respectable level, have seen an uptick in valuation recently.
You cannot own a Mona Lisa or Bored Ape with a minimum wage paycheck. However, a small part of Bored Ape can be owned, and the same goes for Mona Lisa.
NFTs that are fractionalized make it possible for even the lowest-income individuals to own the most valued assets as fractions of a tokenized asset. This provides a new level of democratization of ownership and access to valuable assets.
The size of an NFT is irrelevant. It doesn’t matter how many fractions the NFT is divided into. Just like you can own a small piece of a blockchain company’s stock via ERC-20 tokens, you can own a small piece of an NFT through their associated tokens.
Fractionalized assets
Fractionalization can lead to increased liquidity and create more democratic non-fungible tokens. This makes them more accessible and user-friendly, which can make them more popular among investors and users.
In the physical world, fractional ownership opportunities abound. Ownership can take many different forms, from outright ownership of something to fractional ownership to licenses and permits that allow someone to use or access something.
For example, you could have a partial ownership stake in a business, a rental property, or an investment property. There are many reasons to have a fractional ownership stake in something – it can give you a sense of ownership, help you learn more about a particular topic, or provide a financial opportunity.
Fractionalizing a company with stocks allows for ownership of a fraction of the company. This allows for different people or groups to have a stake in the company and makes it easier for them to interact with one another.
Whatever the reason, there’s no doubt that fractional ownership opportunities are a great way to explore and enjoy the world around you.
Fractionalization is not a new phenomenon. Assets with blockchain technology are only the latest innovation in the world of asset ownership. They enable us to own something new and exciting, something that has the potential to change the way we live.
Difference between fractional NFTs and traditional NFTs
An NFT is a complete digital asset that cannot be broken down into smaller parts. However, fractions of an NFT can also be created, called “F-NFTs.” These are smaller units of an NFT and can be used to represent specific parts of the asset. For example, an F-NFT could represent a share of an asset or a particular transaction within the asset.
F-NFTs are a type of ownership stake in a whole NFT representing a certain percentage of the total value of the NFT. F-NFTs are owned in fractions of their total ownership. This means that the holder of an F-NFT has a fractional stake in the underlying NFT and is not the full owner.
Fractionalization of NFTs can be reverted back, provided that the correct steps are taken. This means that a holder of a certain quantity of an NFT can trade it with other holders of the same quantity without affecting the overall quantity of the NFT.
The smart contract offers an option to buy out the investor’s shares at any time. This gives them the opportunity to trade their fraction of the actual NFT whenever they want. This allows investors to sell or trade their NFT without having to worry about the underlying blockchain.
This is helpful in situations where the investor wants to cash out their holdings but doesn’t want to sell all of their NFTs at once.
If the holder of F-NFT transfers back his stake to the token’s smart contract, the holder will be automatically entered into a buyback auction. The auction will last for a certain time period, after which the F-NFT will be sold back to the token’s smart contract.
The remaining holders will have the opportunity to vote on the buyout within that period, and in the event that it is approved, the fractions of the NFT will be promptly reverted to the smart contract, and the buyer will acquire total ownership of the non-fungible token.
A few fractional NFT examples
There exist two frequently cited instances of F-NFTs.
- In July 2021, Grammy-nominated musician Grimes sold her piece called Newborn 1 and 3 on Otis, an online auction platform dedicated to selling fractional digital assets. The price for this work began at 10 dollars per share.
- In June 2021, an NFT related to the Doge meme was sold for four million dollars. PleasrDAO, the company behind the Doge NFT, divided it into pieces around 17 billion and made it available to anyone. In the true spirit of Dogecoin, this lets anyone own a tiny part of the actual Doge meme. The Dogecoin community embraced this gesture, and the Dogecoin price spiked as a result.
NFTs can be purchased at a fraction of the cost of costly NFTs if you only need to purchase a small piece. Through Fractional NFTs, you can get the same benefits as buying a whole NFT without all the extra expense. Fractional NFTs allow you to purchase a small piece of an NFT, which reduces the cost of owning them.
Popular NFT marketplaces where one can buy fractional NFTs?
There are some options available, and they are always growing. You could find a digital artwork provider that offers fractionalized NFTs, such as a digital artwork marketplace that allows you to buy and sell individual pieces of artwork.
Whatever marketplace you choose, be sure to research the options carefully and choose a provider or marketplace that meets your needs.
Here are a few of the options offering fractionalized NFTs.
- Unicly
Unicly is a protocol that allows for the trading, fractionalization, and combining of NFTs. This is popular because it allows for the seamless integration of NFTs into the existing blockchain ecosystem. Any form of Ethereum token can be broken down into smaller units on Unicly.
This means that you can divide an NFT into smaller units, or “fragments,” without having to lose its identity or value. This is a great way to make your NFTs more manageable and easier to trade. This allows for a wide range of uses for Ethereum-based tokens, from simple investing opportunities to more complex derivatives and contracts.
- Fractional.art
Fractional.art offers a variety of tools to help you mint, sell, buy, and fractionalize your NFTs. Fractional.art supports Ethereum NFTs as well. This allows you to own a small piece of a tokenized asset without having to hold the entire asset. These innovative tokens allow for unprecedented creativity and collaboration within the art community.
KuCoin is a trusted and well-known centralized exchange that regularly sells fractionalized NFTs that are from various legitimate collections. These NFTs are great for investors because they offer high liquidity and safety and a way to invest in a variety of cryptos, and they offer great returns.
- Otis
Otis is a platform that allows you to own a piece of a digital asset, like a token or an NFT. This way, you can get ahold of a smaller share of the asset while still having full control over it. This is an important feature because it allows you to invest in a wide variety of assets without having to hold all of them in one place.
Otis also has a built-in marketplace where you can buy and sell NFTs. This makes NFTs more accessible and easier to trade, which is great news for investors. Otis is a great option for anyone looking to get involved in the NFT market.
Public.com, a cryptocurrency investment platform, has acquired Otis.
This news is likely to bolster Public.com’s reputation as a reliable platform for investing in cryptocurrencies as this marks Public.com’s first major acquisition and further underscores the company’s commitment to helping investors make informed decisions about cryptocurrencies and blockchain technology.
This will allow the company to expand its offerings and reach a wider audience.
What benefits are there for fractional NFT owners?
Fractional NFT ownership allows for more efficient use of blockchain resources and allows for more equitable distribution of assets. This benefit is especially important for smaller blockchain projects, which may not have the resources to support a full NFT economy.
Here are some key advantages that F-NFTs offer to investors.
- Money
NFT avatars are beneficial because they let you be who you want to be in a digital world. Although there is no set number of NFTs that are chosen to be honored as “blue chips,” those that are typically considered to be valuable and have the potential to grow in value are often included in this category.
The fractionalization of NFTs allows users to purchase a piece of the blockchain’s history. When the market crashes, some NFTs retain more value than others. And when the market is booming, your fractional NFT shares continue to go up in value.
- Democratization
With fractionalized digital art, everyone can own a piece of art, no matter how small their investment is. This is because digital art pieces can be divided and shared among many people, unlike real-world paintings, which can only be owned by one individual at a time.
NFTs can make investments a lot more democratic because they allow people to invest in and hold assets without having to trust a third party.
- Increased liquidity
As more quantity of a good or product is produced and more people demand it, the good becomes more liquid. For instance:
Mona Lisa: Mona Lisa is a very popular painting, and there is high demand for it, but only one unit is there in existence, making the market very illiquid. In actuality, no market exists for Mona Lisa because there is only one unit available.
Dollar: Dollars are in huge demand due to their usefulness, and a lot of units exist. The dollar market is very liquid, which makes dollar trading a breeze and makes it a desirable currency.
Whole NFTs: NFTs with different demand levels, based on the specific NFT. There is just one unit of each type of NFT, and they are difficult to trade because of their illiquid market.
Fractional NFTs: NFTs with fractional reserves can have widely varying demands, particularly based on the specific NFT. This makes their market more liquid, making trading easier.
Security concerns and risks associated with Fractionalized NFTs
A lot of projects in the NFT world focus on developing the latest products or services that will build awareness and interest in their NFTs, which could be seen as a form of securities trading.
There is a contention to be made that these projects are actually engaged in securities trading and should be subject to the same regulations and oversight as traditional securities markets.
Ultimately, that is the primary purpose of staking well-known NFTs- generating more revenue. There is still a lack of regulation of the NFT market, which makes it vulnerable to fraud and abuse. This makes it difficult for people to trust the NFT market and makes it difficult to invest in them.
Fractionalization allows influencers to sell fractions of their NFTs, which makes it more accessible for the average person to invest. Finally, reconstitution could be a difficult process for NFTs, as it can require a lot of effort to restore them to their original state.
Conclusion
There is no doubt that tokenization is here to stay and that NFTs are here to stay as well. Both technologies are proving to be very useful and will continue to be so in the future.
