NFTs or non-fungible tokens herald a new era of decentralized and transparent asset ownership. One of the most distinguishing characteristics of NFTs is their guaranteed exclusive ownership. An NFT cannot be duplicated or forged; it is a unique token. NFTs provide authenticity and ownership of real-world goods in a blockchain network. Non-fungible tokens (NFTs) are all the rage in the crypto world these days, as anyone who follows them knows that NFT development is profitable.
As digital assets and blockchain technology are increasing their limits, a new concept has recently emerged with the potential to transform the digital art market. As a result, space innovators have pushed the boundaries of what’s possible for NFTs, including opportunities for fractional ownership. If you’ve been eyeing a particular NFT collection but could not meet the floor price, you may soon be able to own a portion of it through fractional ownership. Keep this in mind, and don’t forget to research before purchasing any digital artwork.
What is Fractional NFT?
A fractional NFT is a whole NFT divided into smaller fractions, allowing multiple people to claim ownership of the same NFT. The NFT gets fractionalized through a smart contract that generates a predetermined number of tokens linked to the original. The fractional tokens illustrate a portion of ownership. These fractional tokens provide a percentage ownership stake in an NFT and can be traded or exchanged on secondary markets. The points in the discussion of fractionalized assets go beyond the scope of “What are fractional NFTs?” and provide an overview of their importance.
Fractional non-fungible tokens are an intriguing solution for increasing the general public’s access to the world of NFTs. Most popular NFTs today are prohibitively expensive and out of reach for the average person.
Fractionalized NFTs can help you become the owner of a specific share of the NFT. The fractional tokens are tradable on secondary markets offering increased liquidity. Now let’s explore more about Fractional NFTs.
What is the Process of NFT Fractionalization?
The feasibility of fractionalization for assets creates a platform for its NFT implementation. Many people who have reservations about owning fractional non-fungible tokens must be concerned about their authenticity. However, you can get a good answer about how fractionalization works with NFTs. An NFT is simply a token that adheres to Ethereum’s ERC-721 standard. Before the NFT gets fractionalized, it gets locked in a smart contract. The smart contract is a program stored on the blockchain that is programmed to execute automatically when certain conditions get met.
Based on the instructions provided by the NFT owner, the Smart-contract divides the ERC-721 token into multiple fractions of ERC-20. The owner specifies the number of ERC-20 with their price, metadata, and other properties. Each ERC-20 represents a portion of the total NFT ownership. The fractions get sold at a fixed price until they are exhausted. It’s worth noting that NFTs and fractionalized NFTs aren’t just for the Ethereum blockchain.
Any blockchain network that supports smart contracts and NFTs can support fractionalization. Smart Contracts support alternative networks such as Polygon (MATIC), Cardano (ADA), and Solana (SOL) and can be used to create and transfer NFTs. These networks also have the advantage of quick transaction times and no gas fees.
Advantages of Fractionalized NFTs
The fractional NFT space is still in its early stages. There is something for everyone as the worlds of non-fungible tokens and decentralized finance collide. Whether you are a collector, investor, NFT staker, or collateral for loans, there is something for everyone. Fractional ownership has shown revolution, broadening the boundaries of the NFT sector and providing more people with the best NFT to buy. Some additional benefits of NFT fractionalization include
The feature of NFTs is their individuality. This feature forces access to NFTs. Fractional NFTs address the NFT liquidity issue with ERC-20 tokens tradable on secondary markets. Rather than waiting for months to sell a whole NFT, investors can purchase several fractions of it and trade them.
Fractional NFTs can help you quickly determine the market value of the NFT. Fractionalization reduces ownership costs and makes NFTs more accessible to a broader range of investors and owners. Investors can benefit from an NFT’s price gains because this automatically echoes all of its fractions proportionally. Assume you have digital artwork and would like to know how much it is worth, then fractionate the NFT and sell 10-20% on the open market.
The curator fee is yielded annually to the NFT owner. While the NFT owner can set and change the curator charge, it is limited to a maximum price set by the governance to avoid excessive fees. The benefits mentioned above have primarily benefited investors. Fractional NFTs provide greater rewards for artists by exposing them to an investor base in a more liquid market.
Use cases of Fractional NFT:
Fractionalized NFTs are an excellent way to gain exposure to the NFT market. However, that is not the only role fractionalized NFTs play; they also have a variety of real-world applications that make them even more valuable. Let’s look at some industry-level use cases of fractionalized NFTs of real-world applications.
The biggest game studios are considering making fractional NFTs available as in-game purchases. Furthermore, because these games have millions of players worldwide, fractional NFTs are ideal for this application. Fractional NFTs enable users on a tight budget to enjoy the game while participating in the NFT market. Most play-to-earn crypto games allow users to buy, sell, and own various in-game items, including NFTs. Multiplayer games also use Fractional-NFTs to enable players to pool their resources and buy and sell expensive in-game assets by investing in fractionalized shares.
Fractional NFTs have the potential to play a significant role in the real estate industry by allowing consumers to purchase a premium property. A high-priced luxury property can be fractionalized into multiple fractional NFTs, allowing many investors to participate. NFTs can significantly speed up property sales by replacing intermediaries with smart contracts that enable simple and secure ownership transfer. Other benefits of converting a real estate property into an NFT include instant ownership settlement and a simplified overall transaction process. Furthermore, ownership and rights history are recorded directly on a blockchain. Hence the transaction details are typically verified quickly and easily.
The only difference is that Fractional NFTs allow multiple parties to share property ownership rather than just one. Although Fractional-NFTs are not yet widely used in the real estate industry, it is easy to see how their use will make real estate investing more affordable in the upcoming years.
Musicians are finding value by using fractional NFTs. It is a win-win situation for both the artists and their fans. Many artists have begun selling royalty shares, and the music album is distributed directly to fans who invest in the album’s NFT.
The fractional NFT concept is generating a positive move in the music industry. The record labels share the significant revenues generated by the current streaming model. F-NFTs allow artists to fractionalize their albums and sell them directly to their fans without any middleman.
The fractional NFT market arises to be unique and glowing. Sure, it’s smaller and more specialized, but it could offer just as much room for innovation as the larger NFT ecosystem. Fractional NFTs could be the next big thing in the NFT space because they lower investment barriers. Fractional NFTs increase liquidity, which opens the market to a broader range of investors and guarantees that these fractional NFTs will power the next wave of digital asset monetization. Furthermore, as NFT grows in popularity and demand, we can anticipate many more developments in this domain.