How Can You Share an NFT? Fractional NFTs Explained
In this article, we will explore what fractionalized NFTs are and how they can be shared among people through the process of fractionalizing NFTs.
Sometimes NFT assets are too expensive for a single person to own. A high-value NFT asset like a luxury yacht or real estate can be too expensive for a single person to own. For example, some NFTs known as Blue Chips such as Bored Ape Yacht Club, CryptoPunks, and Moonbirds are worth millions of dollars. This is where fractional NFTs come into play allowing people to gain fractional ownership of a highly-priced asset with a small sum of money.
What is a Fractional NFT?
A Fractional NFT (F-NFT), which is also referred to as a fractionalized NFT, is simply a whole NFT divided into smaller pieces offering NFT enthusiasts a way to collect and own a fraction of an NFT. Fractionalization of assets is the simple act of dividing the ownership of an NFT into smaller fractions making it possible for several people to own a small portion of a high-value NFT at a low cost.
Fractionalization is done through smart contracts. A smart contract creates a specified number of fungible tokens interconnected with the indivisible original. Each portion gives the holders a percentage of ownership of the original NFT. If you own a fraction of an NFT, you may later be able to trade the fungible tokens representing a stake in the fractional NFT on an exchange or marketplace at a fraction of the cost.
Let’s look at the process of NFT fractionalization:
1. After being minted as an ERC-721 token, an NFT is locked in a smart contract.
2. Then the NFT issuer decides how many parts to split the NFT into and outlines its price and metadata.
3. The smart contract divides the ERC-721 token into a predetermined number of interchangeable ERC-20 tokens.
4. Every ERC-20 token now represents a fraction of the original NFT and can be put up for sale at a fixed price.
5. F-NFT owners can sell them on secondary markets without affecting the value of the original token.
Note that the NFT can be split into as many parts as the NFT owner wants, be it 10, 1000, or even a billion. NFT fractionalization can be done on any blockchain that works with smart contracts and supports NFT minting. These include popular blockchains such as Ethereum, Solana, Polygon, and Cardano.
Benefits of Fractional NFTs
1. Higher Liquidity
Expensive items, such as digital real estate, luxury goods, and high-class art, have high prices and can be on the market for weeks before they find a potential buyer. These assets are fractionalized in order to boost their liquidity. When an NFT is split into multiple ERC-20 tokens, its pieces are able to be purchased by a greater number of investors and attract the attention of a lot more people.
2. More Democratic and Affordable Investments
Fractional NFTs provide opportunities for investors of all levels and bank balances. Even if their possibilities are limited and they are new to the NFT world, they can still safely join in with the trend and invest in valuable tokens, backed by real assets.
3. Quicker and Easier NFT Price Estimation
F-NFTs allow asset owners to quickly assess the market value of their digital tokens. When NFT owners fractionalize and sell small fractions of an NFT the buyers begin purchasing them or offering their own prices. Thus the NFT owners know the overall price of their whole token.
4. More Monetization Opportunities
One can easily monetize their assets by selling them in tokenized fractions. Moreover, if you are a business owner running your own NFT marketplace, the introduction of fractional NFTs will bring you financial benefits too as it will help attract more investors to your platform.
5. Easier Integration With DeFi Solutions
Since F-NFTs are underpinned by ERC-20 tokens, they can be used in DeFi. For example, many ERC-20 tokens can be traded on DEXs or used in staking and yield farming.
The Most Popular Fractional NFT Marketplaces
Fractional NFT marketplaces are not as fashionable as regular ones. Let’s consider a few of the most popular platforms that offer investment in F-NFTs.
Fractional.art is an Ethereum-based decentralized platform where users are able to mint, buy, and sell fractionalized NFTs. It was launched in July 2021, but already has a success story: just a month after its release, in August 2021, the company raised $7.9 million in seed funding.
Lots of on-trend NFTs: CryptoPunks, Cool Cats, Bored Ape Yacht Club’s pics, Pudgy Penguins, and many others are presented on Fractional.art.
There are collections of cards from iconic athletes that cost from $200 to thousands of dollars. For example, on February 10, 2022, Dibbs dropped one of the best Aaron Rodgers Rookie cards with the football player’s autograph. Going by the name of 2005 Playoff Contenders #101 Aaron Rodgers Autograph PSA 10, the whole NFT cost $39,000 and was completely sold out.
Otis was launched in 2019 and, in March 2022 was acquired by Public, a stock trading platform. Everyone can find digital goods of interest here. The website offers a wide range of items: from sneakers and sports memorabilia to collectibles, comics, and NFTs. For example, you can purchase fractions of Grimes NFT Collection, CryptoPunks, and Meebits as well as physical things such as the first edition of the Harry Potter and the Philosopher’s Stone book, Banksy’s “Police Car”, and Jordan 1 Metallic Red sneakers.
Although the idea of fractionalizing NFTs is still in its infancy it may just be the next thing to watch out for as it continues to make the NFT world more accessible. NFT fractionalization makes investing in unique objects more affordable offering greater liquidity and allowing investors with limited funds to buy NFTs. Now some investors can own large and expensive assets, while others possess only their parts. As NFT continues to grow in popularity and demand, we can expect to see many more interesting developments in this domain.
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