The Non-fungible tokens are widely adopted by individuals, mainly for their enriching features and the benefits it offers them. NFTs are known for their main characteristics, like uniqueness, scarcity, transferability, and indivisibility. Contrary to popular belief, NFTs can’t be divided into smaller units, a concept that existed before the emergence of fractional NFTs. With the emergence of NFT fractionalization, the creation of fungible assets from non-fungible tokens is made possible. By dividing NFTs into smaller shares, fractional ownership enables broader access to valuable assets and promotes the democratization of ownership.
During the month of Jan 2023, around $946 million of NFTs have been traded, and its trade volume keeps on inclining. In this era of NFTs, creating your own Fractional NFT or owning an F-NFT will allow you to gain remarkable perks. This blog explains fractional NFTs and their benefits, along with their use cases.
Fractional NFTs – A Brief Overview
Fractional NFTs mean dividing a single non-fungible token (NFT) into multiple smaller shares, allowing multiple individuals to own a fraction of the original NFT. These NFTs offer a solution for those who may not be able to afford the high price of owning an entire NFT. Fractional NFT ownership also offers the potential for increased liquidity, as it allows for the easy trading of smaller, more affordable shares of the NFT. Additionally, it can create a sense of community around a particular NFT, as multiple owners can share in the ownership and appreciation of the asset.
A real-world example of NFT fractionalization is the sale of the Doge meme NFT in June 2021. The NFT was purchased for $4 million by PleasrDAO, who later offered fractional ownerships of the NFT in the form of $DOG tokens, which fans could purchase for as low as $1. While F-NFTs are often associated with artwork, they have applications beyond the art world. For instance, F-NFTs can be used to divide ownership of the real estate, vehicles, or any other valuable asset. This method of fractionalization can help democratize access to ownership of high-value assets and potentially increase liquidity in the market.
Fractional NFT’s Use Cases
F-NFTs offer numerous advantages to all parties involved, including the ability to make previously immovable NFT assets more liquid. These NFTs have applications in various fields, including art, blue-chip assets, real estate, music clips, etc. According to expert analysis, these are some of the most prominent applications of F-NFTs in 2023.
F-NFTs have numerous use cases, and one of the most significant ones is in the gaming industry. Play-to-earn crypto games, such as Axie Infinity, allow players to buy, sell, and own various in-game items, including NFTs. By using F-NFTs, players can come together and invest in fractionalized shares of expensive in-game assets, making them more accessible to a larger audience. For instance, Axie Infinity has started selling fractionalized ownerships of ultra-rare Axies, which are some of its most popular in-game NFT assets, demonstrating the feasibility of F-NFT trading in the gaming industry.
Fractional NFTs can also be used in the metaverse, a concept that is gaining mainstream popularity. Companies like Decentraland and Sandbox have already entered this domain, and F-NFTs can enable groups of investors, conglomerates, and individuals to come together and purchase virtual land and other digital assets within the virtual world. This feature allows multiple parties to own and invest in virtual assets, making the process more accessible and cost-effective.
The real estate industry can also benefit from Fractional NFTs. NFTs can speed up the property buying process by replacing intermediaries with smart contracts, enabling simple and secure ownership transfer. By converting real estate properties into NFTs, ownership settlements can be instantaneous, and the transaction process can be simplified. F-NFTs are similar to NFTs in that they enable the purchase and sale of properties without intermediaries, but F-NFTs allow multiple parties to share ownership. While F-NFTs are not yet prevalent in the real estate industry, their use can make investing in real estate more accessible and affordable in the future.
How Does Fractional NFTs Function?
Fractional NFTs are a way to split a single NFT into multiple fractions or ERC-20 tokens, representing partial ownership of the original NFT. This allows for ownership of high-value NFTs to be spread across multiple investors, making it more affordable and accessible to a broader range of investors.
To divide an NFT into smaller portions, a smart contract must first be used. This contract will split the original ERC-721 token into several ERC-20 tokens, following the instructions given by the owner of the NFT. The owner can specify various details, such as the number of ERC-20 tokens to be created, their individual prices, the metadata to be used for each token, and any other relevant properties.
Each fraction or ERC-20 token created through this process represents partial ownership of the original NFT. Once the fractions have been created, they can be offered for sale at a fixed price for a specific period or until they are all sold out.
By dividing the NFT in this way, owners can increase liquidity and potentially benefit from selling smaller portions of their assets to a wider range of buyers. It also allows for greater flexibility in managing and transferring ownership of the NFT.
For example, imagine the iconic artwork “The Scream” by Edvard Munch, which was sold for almost $120 million at a Sotheby’s auction in 2011. However, by fractionalizing this expensive NFT into 10,000 ERC-20 tokens, investors could own a fraction of the artwork for as little as $12,000, making it more accessible to smaller investors.
It’s important to note that fractionalization is not limited to the Ethereum blockchain. It can be done on any blockchain that supports smart contracts and NFTs, including networks like Polygon, Solana, and Cardano.
How Fractional NFTs Benefit Its Users?
- Decreased Entry Costs: NFT fractionalization enables people to invest in high-value NFT collections, such as Bored Ape Yacht Club or CryptoPunks, at a lower cost. These collections can be divided into smaller portions that can be sold individually, eliminating the monetary barriers that previously prevented some people from investing in NFTs.
- Increased Liquidity: Fractionalized NFTs are more liquid than their non-fractionalized counterparts. By dividing an NFT into smaller portions, each portion can be sold individually in the market, making it easier for buyers to purchase them at a lower price point.
- Discovering Price Ranges: Fractionalized NFTs enable creators to determine the worth of their artwork by allowing auctions for fractionalized tokens. This eliminates concerns for first-time NFT creators and helps them understand the market value of their creative works.
- Risk Diversification: Retail crypto investors can have a diversified portfolio of NFT assets by purchasing fractions of various expensive NFT collections. This allows investors to spread their risk across multiple assets, reducing the risk of loss in the event of market fluctuations.
- Investment Product Creation: Fractionalized NFTs can serve as a tool to create investment products that could help raise the market capitalization for NFTs. This is closely related to the previous point, as investors can invest in a basket of fractionalized NFTs rather than a single expensive NFT, thereby creating new investment products for the market.
The Lucrative Process Of Creating Your Fractionalized NFT
The process of fractionalizing an NFT typically involves the use of specialized platforms that allow the original owner to split the NFT into smaller shares, often referred to as “tokens.” These tokens can then be bought and sold on a secondary market by other individuals interested in owning a fraction of the NFT.
- To fractionalize an NFT, a user must first create an account on a fractional NFTs marketplace platform. This will enable them to access the platform’s features and functionalities, as well as to engage in buying and selling activities.
- The next step involves purchasing the platform’s native or prescribed crypto tokens, which will serve as the payment method for the fractionalized NFT. These tokens will then be locked in a special “vault” on the platform, ensuring the security of the transaction.
- Once the user has locked their tokens, they can proceed to upload and set the parameters for the NFT to be fractionalized. This includes specifying the number of portions the NFT will be divided into, the price per portion, and other relevant details. This process can be done seamlessly through the platform’s user-friendly interface.
- In addition to fractionalizing the NFT, the platform may offer special rights to buyers, such as gifting provisions, shared ownership, and airdropping. These features can be accessed and utilized by buyers after they have purchased their fractionalized NFTs.
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