What Are Fractionalized NFTs?
Fractionalized NFTs are NFTs that are divided into smaller fractions. This allows for split ownership of a single digital asset, making expensive assets more accessible.
NFTs are built upon the basis of being non-fungible, hence the name. Of course, having certain assets that can’t be replicated like for like can get expensive. Take certain NFTs like Bored Ape Yacht Club, which currently has a floor price of 78.2 ETH (US$207,000). Once hype builds up, it is very hard for an average investor to join in on it.
Fractional NFTs allow investors to buy an NFT without breaking the bank, or owners to liquidate an NFT without losing full ownership of it.
How Do Fractionalized NFTs Work?
An F-NFT is fractionalized with the use of a smart contract. The non-fungible ERC-721 tokens are broken down into a set number of fungible ERC-20 tokens that are linked to the original.[1]https://phemex.com/academy/what-are-fractional-nfts Then the owners of these fractionalized tokens are able to claim fractional ownership of the NFT.
The original owner of the NFT sets the number of ERC-20 tokens to be released and their price, along with various other properties.
Although these can only be traded on secondary markets, they don’t affect the price of the original token. They also are not limited to the Ethereum standard, any blockchain that can support NFTs can have NFTs fractionalized.
Reversing A Fractionalized NFT
F-NFTs can be reversed back into an ERC-721 token, making it a whole NFT again. This is done through a process called “buyout”. The smart contract that first fractionalizes the NFT, will typically have a buyout option. This allows an investor to purchase every fraction and gain full control over the NFT.[2]https://learn.bybit.com/nft/what-are-fractional-nfts/#:~:text=A%20fractional%20NFT%20is%20simply,linked%20to%20the%20indivisible%20original.
A smart contract will automatically trigger the buyback option when a certain number of ERC-20 tokens are transferred from the collection to the smart contract. If all F-NFT owners agree on the decision they’ll be paid out. In turn, the buyer will then receive all ERC-20 tokens, gaining full ownership of the NFT.
How To Buy A Fractionalized NFT
- Fractional.art allows investors to buy, sell and mint fractions of NFTs.
- Masterworks makes it possible to invest in multimillion-dollar works from artists like Banksy, Kaws, Basquiat, and many more.
- PartyBid allows people pool their capital together to purchase NFTs as a team. Anyone can create or join a Party to collectively bid in an NFT auction or purchase an NFT that’s on sale at a fixed price.
- Unic.ly allows investors looking to transform their NFT collection into a tradable asset with guaranteed liquidity, through tokenization of NFTs.
- Otis is making the investment opportunities previously reserved for the few accessible to the many — all while building a museum-worthy collection, and making that collection free to view in spaces around the world.
Basis Of Fractionalization
Fractionalized assets are not a new concept. Besides fractionalized NFTs, there are many assets people split and share ownership with like real estate. Fractional ownership has allowed expensive assets to be readily accessible for a larger market of investors.
In Decentralized Finance, NFT-based ownership has been, until recently whole assets. Fractionalized NFTs solve many problems and encourage the public to invest in safe projects without needing to invest huge sums of money.
Despite this fact, NFT markets have a long way to come, and until the broad NFT market is better adopted Fractionalized NFTs will be drudging behind.
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