In this time and age, owning an NFT is almost a requirement. However, the most popular and valuable NFTs are already very expensive, with some running into millions of dollars in fiat value. It may seem impossible, then, to own a useful NFT without breaking the bank. That is where fractionalized NFTs come to the rescue. In this article, we will discuss what they are and how you can benefit from them.
What you'll learn 👉
WHAT IS A NON-FUNGIBLE TOKEN?
A non-fungible token is a unique unit of data employing technology that allows digital content, such as videos, songs, and images, to be authenticated on the blockchain. Blockchain infrastructure has made it easy for artists to turn physical or artwork into Non-fungible tokens easily. This also makes owning or selling digital content very easy.
WHAT ARE FRACTIONALISED NFTS?
This is dividing the ownership of a Non Fungible Token into smaller fractions. This process makes it possible for many people to own a single Non-Fungible Token which could have been unaffordable.
It is a fast-growing sector in the cryptocurrency industry because it allows investors with a small amount of money.
👉 Fractionalized Non-Fungible Token is similar to buying shares in a company. Each of the shares enables investors to own a part of the company and vote.
It is very easy to buy a fraction of an NFT; you will just be required to connect your wallet to the fractional website, click on the Non-Fungible Token of interest, choose the number of tokens, and then pay.
Its value is through these four components: Utility, Ownership history, Future Value, and Liquidity Premium.
HOW IT WORKS
The standard of Non-Fungible Token is Ethereum ERC – 721. Before a Non-Fungible Token can be Fractionalized, it will be locked in a smart contract which will automatically execute when predetermined conditions are met.
The original owner determines the number of fractions the Non Fungible Token will be. It could be in hundreds, thousands, tens of thousands, millions, or even billions.
These fractions have a fixed price and will be sold over a set period on the ERC-20 token standard.
They can be bought and sold on a secondary market without affecting the value of the original Non-Fungible Token.
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WHERE TO BUY
Fractional Art
Using a smart contract, Fractional Art breaks down the ERC-721s to a desired amount of ERC-20s. It also makes available the number of fractions each Non Fungible Token has and the quantity of available supply.
PartyBid.com
PartyBid.com allows for investors’ resources to be pooled together to purchase NFT, which is later split amongst the investors
Niftex.com
Owners of Nfts are allowed to create fractions from their NFTs, fix a price, and sell.
BENEFITS
NFTs’ prices are so high, making it difficult for easy participation. However, with Fractionalized NFT, a small amount of money can make one a part-owner of a high price NFT.
- more significant people’s participation enables assets that would have stayed longer to be sold to get sold quickly.
- More interest is created on assets.
- It allows easy monetisation.
- Traders discover fair prices.
- Investors get passive income no matter how small they invest
- Ownership of assets can easily be tracked
- owners can transfer NFT assets
LIMITATIONS OF FRACTIONALISED NFTS
- There is no legal protection outside the blockchain, which makes changes in law and geography affect it.
- Experienced hackers can easily take advantage of their weaknesses to hack the network.
- There could be property encroachment. Proper research should be done to validate the ownership of an F-NFT to be purchased.
WHY F-NFTS ARE NECESSARY
- It enables investors with minimal capital to own a fraction of an expensive property
- It allows ownership of different assets with little money.
- Properties that are expensive and could have stayed long are sold out in bits making the sales faster.
- Fractionalized Non-Fungible Token can be traded on exchange to add liquidity further.
The following industries can be disrupted by NFTs:
Art and Music industries
Flexibility is possible when an individual runs his industry, but NFT’s permission is required before anything changes can be done.
On the other hand, artists can benefit significantly from their arrangements because it brings recurring royalties to them anytime asset exchange from one buyer to another.
The Gaming Industry
NFT allows users to keep the assets purchased in the game.
These assets could be sold, converting their games to reward points.
They can even participate in other games.
Collectibles
NFT addresses the issues of authenticity and ownership of collectible assets. This is possible because of the unique nature of NFT, which cannot be duplicated.
Therefore, NFT collectibles assets cannot be duplicated, making them rare and unique.
Land Ownership/ Claims
Ownership transactions are easier using NFT.
There is no need for a lawyer or proof of ownership; smart contracts take care of that.
NFT ensure the exchange of assets between both parties.
FUTURE OF FRACTIONALISED NFTS
For many reasons, the adoption of fractionalized NFT will grow with time because it has many advantages over traditional fractionalized assets such as stocks, bonds, and other financial securities in the financial markets. Currently, there are so many ways it can improve the infrastructures already in place in the blockchain space or make them more attractive. We will take a look at these aspects now.
Security and volatility
Holding an NFT in a wallet guarantees its security as long as no one else has access to the wallet, and generally, NFTs are less volatile. The low volatility is owed to the fact that there can not be an excess supply of an NFT (since an individual can only create it at a time) that could lead to price fluctuations.
Fundraising
The sale of Nfts has been a means by which many projects raised funds for their launching. The sale has been made much easier with smart contracts that allow traders to buy and sell the fractions or even whole NFTs without personal contacts.
Tokenisation of assets
The tokenization of assets has made investing in assets so flexible and secure. Fractionalized NFTs allow new startups to tokenize their stocks for many to purchase.
Gaming utility
Fractionalized NFTs certainly have so many to do in the gaming world. The gaming world has attracted both investors and gamers in recent times. This is no surprise, as incorporating blockchain technology in gaming has made it a better preference than the traditional gaming world.
The different gaming models such as Play to earn, player versus player, player versus environment, pay to play, etc., all use the sale of NFTs within the game and are sold on their marketplaces. Fractionalisation of NFTs will create an opportunity for multiple players to collaborate to purchase a more expensive piece of NFT.
Metaverse utility
The metaverse has been on the lips of many in recent times as a result of many opportunities it has created for many in various fields. F-NFT certainly is going to make a lot more happen in the metaverse as this will make it easier for so many to engage in activities in the metaverse such as buying land, owning property, etc. when these tradable items are fractionalized in the forms of tokens, it makes it possible for those with limited funds to purchase at least a piece of such items.
Better for artists
The utility of the NFTs also appeals to many in the art world such as musicians, artists, creators, etc. the products of artists in digital form such as video files, audio files, and images can reach more audiences when they are fractionalized. This allows many who can afford to own a whole piece still to claim ownership on at least a fraction of it while the creator still maintains the copyright.
FINAL WORDS
With the increasing wide adoption of blockchain technology by the day, it is no surprise that many innovations original to the blockchain space are being embraced by the many in the traditional finance system.
Tokenisation of assets has been done in the mainstream finance world for a long time now. It is no surprise then that the fractionalizing of NFTs is attracting many investors (Venture Capitalists and retail traders) and users, and it will continue to attract many. It is safe to say then that interest in this space is still at its early stage now and can bring more opportunities in the future as its adoption increases.
Frequently Asked Questions
Is fractionalised NFT a security?
👉 A financial instrument that is notable, fungible, and represents some form of monetary value like a bond, stock, etc., is known as a security. Therefore, if a fraction of an NFT is fungible, negotiable, and is used to provide liquidity, we can say it is a security.
What is a fractionalised NFT?
A fractionalized NFT is a whole single piece NFT owned by several people.
Can you fractionalise NFT?
Yes, you can fractionalize an NFT. Fractionalising NFTs has been made possible by creating a smart contract deployed to generate ERC-20 tokens linked to a non-fungible erc721 NFT.
Can you divide NFT?
No, you cannot divide an NFT. However, the ownership of an NFT can be claimed by several individuals.
