One of the most recent technological breakthroughs in the NFT industry is the use of so-called “fractional NFTs.” In the digital asset arena, NFT fractionalization is a novel idea that, as a result of its creative offer, stands to revolutionize the fundamental architecture of non-fungible tokens and open up new frontiers for investors.
What exactly are fractional NFTs?
In simple terms, a fractional NFT is a complete NFT split into smaller fractions, enabling various individuals to claim ownership of a portion of the same NFT.
It is almost impossible for those who invest in cryptocurrency on a fractional basis to lose their money. The notion is comparable to that of holding stock in an enterprise. Rather than limiting ownership to giants, it makes it possible for small and mid-tier investors to participate in the NFT. As a result, rather than being the only owner of a valuable tokenized asset, F-NFTs enable investors to possess a portion of a valuable asset.
Since the tokens are indivisible and hard to duplicate, they are the appropriate method for tracking down individual pieces of intellectual property. These virtual assets include anything from in-game objects to virtual real estate to digital art and various other things.
Is it possible to separate NFTs?
Fractionalization may be used to break down NFTs into smaller parts. F-NFTs are indeed available on many platforms, including Fractional and Nftfy.
A smart contract locks an NFT in place before it can begin the fractionalization process. As a result, the smart contract divides the ERC-721 NFT into several fractions in the form of ERC-20 tokens, with every fraction representing a portion of the NFT’s ownership.
Using this method, the cost that would have been incurred by paying USD 400,000 for a single NFT may be shared among 100 future owners, each of whom will pay USD 4,000.
What is the process of NFT fractionalization?
Fractionalized NFTs are the latest craze, and smart contracts are how they are made possible. An NFT is just a token that adheres to the Ethereum ERC-721 standard at its most basic level. For the NFT to be fractionalized, it must first be secured in a smart contract.
Following the NFT owner’s directions, the smart contract then divides the ERC-721 token into several fractions, each of which is represented by a separate ERC-20 token. According to the owner, the quantity of ERC-20 tokens that will be issued and their price, metadata, and other attributes will be disclosed. In other words, each fraction, or ERC-20 token, represents a fractional ownership stake in the whole NFT network. A predetermined price is established for the fractions, and they are only available for purchase for a specified amount of time or until they are completely sold out.
Where can we purchase a fractional NFT?
Numerous sites have sprung up where users may generate and acquire fractionalized NFTs, including those listed below.
Unicly: Unicly is a trading platform for investors who want to convert their NFT collection into a tradable asset with assured liquidity. Tokenization of NFTs and the creation of tradable collections of any size are possible via the platform.
Otis: Otis is an NFT investing platform that allows users to invest in collectibles and art, manage their portfolios, and engage in real-time trade using the Otis app. A fractional stake in a cryptocurrency asset may be acquired via the platform by investors.
Fractional.art: It is the most recent addition to the Ethereum network, and it is vying for a chunk of the F-NFT market. NFTs are traded on this platform, and investors may buy, sell, and mint fractional shares of NFTs. NFT holders may utilize the platform to produce NFT fractions or to become owners of fractionalized NFT collections that they would otherwise be unable to buy.
Fractional NFTs: A good investment
NFTs that are fractional are unquestionably a solid investment. They assist in unlocking liquidity for NFTs while also promoting inclusiveness and involvement in the thriving NFT ecosystem. They contribute to expanding new prospects in the NFT market by adding liquidity, price discovery, and democratization to the market.
However, fractionalized NFTs are not risk-free; they must deal with the same concerns that beset NFTs in general, such as publicity rights, contracts, and intellectual property rights. Furthermore, although the selling and acquisition of complete NFTs as digital collectibles may not raise concerns with securities regulations, the development of F-NFTs is more likely to raise concerns with financial regulators since their creation might be perceived as illegitimate initial coin offers (ICOs).
The significance of fractional NFTs
Increased market participation
Due to the expensive costs of certain NFTs, smaller investors may be unable to participate in the market. No matter how much lower the percentage sizes of fractional NFTs are reduced, the result is increased market participation.
To develop more interest in their asset, an NFT owner must make it easier for others to participate. Additional benefit of fractionalized NFTs is that they are more favorable to owners/creators who want to preserve a portion of their ownership.
Fractionalized NFTs may offer methods for determining the value of a certain NFT in the price discovery process. Lower costs imply a greater number of statistically significant participants. Traders can find a reasonable price by making the market more accessible to a wider range of participants.
Owners who convert their NFTs into F-NFTs can receive a curator fee every year. The curator charge is established and updated by the NFT owner, who has the power to do so. On the other hand, the maximum fee is determined and regulated by governance in place to avert the curator from exploiting the other owners with excessive charges.
A greater level of asset liquidity
One of the most distinguishing characteristics of NFTs is that they are unique tokens that cannot be duplicated or split. Even among NFT artists, makers, and investors, the lack of liquidity in the sector is a source of worry since it is evident that the NFT market is restricting access to its selection of uncommon and expensive NFTs.
Because only a few investors are willing to purchase these NFTs, this inevitably results in asset illiquidity. In contrast, NFT fractionalization was developed and intended to address and overcome the liquidity shortage in the secondary markets.
To increase the asset liquidity of an NFT, the ERC-20 tokens that represent each fraction of the NFT may be exchanged on decentralized and centralized exchanges.
Fractional NFTs use cases
The selling of artwork in NFTs served as an inspiration for the development of fractional NFTs. Nevertheless, the usage of the technology can have many use cases.
Gameplay using F-NFTs
Unlike other types of crypto games, play-to-earn games feature the earning, selling and purchasing, trading of in-game products, the majority of which are non-fungible tokens (NFTs). However, with the arrival of F-NFTs, multiplayer games such as Star Atlas and Axie Infinity may be able to use the technology to allow players to band together to acquire more costly items, such as spacecraft and planets in Star Atlas.
The selling of ultra-rare Axies, which are the game’s NFT assets, is one way in which Axie Infinity is already putting this theory to the test. In this case, community members have fractionalized the Axies and sold them through Niftex, a fractionalization marketplace.
The metaverse and F-NFTs
The metaverse is a notion that is becoming more popular. A significant amount of money from the “real world” is expected to flow into the burgeoning virtual universe, thanks to the efforts of firms like Sandbox, Decentraland and Facebook,
F-NFTs have the potential to enable individuals, groups of individuals, investors, and even corporations to join up to purchase virtual land and some other assets in the virtual world.
Real estate and F-NFTs
F-NFTs may benefit a wide range of people, not only those who own property in the metaverse. F-NFTs may be utilized to enable fractional ownership of real estate properties when it comes to real-world applications.
Even though the idea of fractional NFTs is still immature, it seems to be the next big thing in the ever-growing cryptocurrency market. The use of NFT fractionalization allows for higher liquidity and, as a result, an infinite number of investment strategy options. It ensures that the next surge of monetization of digital assets will be fueled by F-NFTs, which expands the market to a substantially more extensive range of investors.
Although the F-NFT marketplace may face some regulatory problems shortly, the future seems bright due to the large number of real-world applications being developed.