Fractional NFTs Might Democratize Digital Investing
The year 2021 has been dubbed “the year of non-fungible tokens” (NFTs). With over USD 10 billion in sales, the mostly crypto art-driven NFT industry might exceed the conventional arts and antique markets this year.
One of the most recent advancements in the NFT market is what are known as “fractional NFTs,” which attempt to give fractional ownership of individual NFTs in order to allow multiple owners of a tokenized asset.
Continue reading to discover more about fractional NFTs and their applications.
What exactly are fractional NFTs?
Fractional NFTs (F-NFTs) are non-fungible cryptographic tokens that represent fractional ownership.
In other words, F-NFTs enable investors to own a portion of a costly tokenized asset rather than being the only owner. It’s similar to owning stock in a corporation, only your stake is in an NFT.
Owning a portion of Beeple’s “Everydays: The First 5,000 Days” artwork, which sold at Christie’s for USD 69 million, is an example of a fractional NFT.
Through a process called as fractionalization, NFTs may be broken into smaller parts. F-NFTs are currently available on platforms such as Fractional and Nftfy.
The fractionalization process comprises taking an NFT (ERC-721 token), encrypting it in a smart contract that splits it into multiple fractions of fungible ERC-20 tokens, and then making these tokens (F-NFTs) accessible to the market.
Among doing so, the cost of paying USD 500,000 for a single NFT may be shared by 100 prospective owners, each of whom pays USD 5,000.
The addition of fractional NFTs to the NFT market increases liquidity. They also democratize access to high-value NFTs by shifting ownership opportunities away from people and organizations that can afford them and toward everyone who wants to participate in the NFT market.
The selling of the Doge NFT is a real-world example of NFT fractionalization. In June 2021, the Doge meme, the official face of Dogecoin (DOGE), was auctioned for USD 4 million. PleasrDAO, the NFT’s owner, issued fractionalized ownership in the form of $DOG tokens in August 2021, which followers of the meme could purchase for as little as USD 1. This example demonstrates the use of F-NFTs in the art world.
However, art is not the only industry that may profit from F-NFTs.
Case Studies for Fractional NFTs
The selling of artwork in the form of NFTs spurred the creation of fractional NFTs. However, the technology’s use may have additional applications.
Gaming and F-NFTs
Earning, buying, selling, and trading in-game products, the majority of which are NFTs, is the focus of play-to-earn crypto games. However, with the development 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 buy more costly commodities such as spacecraft and planets in Star Atlas.
In fact, Axie Infinity is already putting this to the test by selling ultra-rare Axies, the game’s NFT assets. Members of the community have fractionalized the Axies and sold them using Niftex, a fractionalization platform.
The metaverse and F-NFTs
The metaverse is a notion that is becoming more popular by the day. With firms like Decentraland, Sandbox, and Facebook investing in the expanding virtual universe, there will undoubtedly be a lot more investment from the “real world.”
F-NFTs have the potential to enable individuals, groups of individuals, investors, and even corporations to join together to purchase virtual land and other assets in the virtual world.
Real estate and F-NFTs
F-NFTs can benefit more than only landowners in the metaverse. F-NFTs might be utilized to power fractional ownership of real estate property in the real world.
Will regulators, on the other hand, play ball?
New innovations bring new problems, particularly in developing technological industries such as cryptocurrency and tokenization.
Fractional NFTs Might Democratize Digital Investing In the case of F-NFTs, authorities are already claiming that they have resemblance to securities and may be regulated as such in the future. While restrictions are not necessarily net-negative, excessive regulation may stymie the development of this new technology, which might help to democratize investment in tokenized assets.