What are fractionalized NFTs?

Date Published

06/16/2022

NFTs are certainly not new to the world of crypto, having exploded in popularity during 2021 while making their way into countless mainstream conversations. Whether you are closely tied to crypto markets or not, odds are you have at least heard of Bored Ape artwork, NBA Top Shot Moments, or any number of other trending NFT platforms. In August of last year, trade volume reached its peak when $1.07 billion worth of NFTs exchanged hands in a single week.

This was not a fluke or an accident. The skyrocketing popularity of NFTs came about for several reasons – most notably the value tied to each digital asset’s uniqueness and scarcity. NFTs are non-fungible in the sense that they cannot be copied or modified, so while they might seem no different than a run-of-the-mill jpeg or video clip, their authenticity and ability to be transferred and owned outright have made them sought-after on a global scale.

But some of their other foundational attributes – the fact that they are indivisible and unique – were also seen as shortcomings or barriers to entry by some, such that the definition and possibilities of NFTs have started to expand. Now, shared ownership of NFTs is emerging in the form of fractionalization.

Benefits of fractionalized NFTs

Fractionalization of high-value assets like vacation homes and luxury aircrafts have long allowed investors to expose their portfolios to expensive assets without having to own them outright. Fractionalizing an asset not only reduces its price – it also reduces the risks associated with investing in it.

The concept of fractionalized NFTs is much the same. They offer exposure to expensive assets without having to buy them in their entirety, bringing liquidity to a notoriously illiquid market. Some NFTs have been selling for hundreds of thousands or even millions of dollars. Now, these expensive digital assets can be traded in smaller, more affordable portions. NFT holders can also sell parts of NFTs in exchange for crypto while retaining majority ownership of the asset.

How fractionalized NFTs work

Fractionalized NFTs refer to a set of fungible tokens tied to a whole NFT or a set of NFTs, implying proportionally shared ownership of that asset between multiple parties.

NFTs are fractionalized using smart contracts that generate a set number of tokens linked to the original NFT. These fungible tokens represent a percentage of ownership of the NFT and can be bought on fractionalized NFT platforms or traded on secondary markets.

It is important to note that the traded portion of an NFT as represented by these fungible tokens can cause the NFT’s valuation to go up or down. There is no mechanism to prevent a fractional NFT from deviating from the price of the underlying asset, which is something to consider when making a trade.

Examples of fractionalized NFTs

NFTs in general have many applications and can take many forms, but the most popular are artwork and real estate, with potential use cases for other asset classes where shared ownership is already commonplace, such as company stocks

Noteworthy fractional NFT sales include that by musician Grimes, who auctioned the NFT artwork Newborn 1 & 3 on the Otis platform in July of 2021 with prices starting at $10 per share.

An NFT of the Doge meme that sold for $4 million in June of 2021 is also now valued at several hundred million dollars after the buyer fractionalized it 17 billion times, allowing anyone to own a piece of it for mere pennies.

Where to find fractionalized NFTs

There are several different platforms available today for creating and purchasing fractionalized NFTs. Here are a few of the most popular.

Otis allows you to invest in NFT collectibles and art, manage your NFT portfolio, participate in real-time trading, and acquire fractional interests in crypto assets.

Unicly helps investors transform their NFT collections into tradeable assets with guaranteed liquidity, in addition to allowing you to tokenize NFTs while creating tradeable collections of any size.

Fractional.art is a platform for buying, selling, and minting fractions of NFTs. Users can create NFT fractions or become an owner of fractionalized NFT collections they would not otherwise be able to afford.

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Date Published

06/16/2022

Author

First Scribe

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