Piece by piece: the issues with fractional ownership of art. Retrieved from The Art Newspaper: https://www.theartnewspaper.com/2019/10/30/piece-by-piece-the-issues-with-fractional-ownership-of-art
Fractional. (2021, March 17). What is Fractional? Retrieved from Fractional: https://medium.com/fractional-art/what-is-fractional-dd4f86e6458a
Garnett, K. J., Neuburger, J. D., & Zarb, F. (2021, April 22). NFTs Are Interesting but Fractionalized Non-Fungible Tokens (F-NFTs) May Present Even More Challenging Legal Issues. Retrieved from The National Law Review: https://www.natlawreview.com/article/nfts-are-interesting-fractionalized-non-fungible-tokens-f-nfts-may-present-even-more
Genc, E. (2021, April 19).
The Bottom Line on NFT Fractionalization
The NFT market continues to explode in popularity and demand and we are certain to see more interesting developments and use cases as blockchain technology evolves even further.
The concept of fractional NFTs is still nascent, but it looks like it’s going to be the next big trend in the ever-growing crypto industry.
NFT fractionalization enables greater liquidity and by extension endless possibilities for investment strategies. It opens up the market to a significantly wider pool of investors, ensuring that the next wave of monetization of digital assets will be powered by F-NFTs.
At the intersection between NFTs and DAOs, several such organizations have been formed with the express purpose of using funds contributed by members of the DAO to acquire expensive, culturally significant NFTs that would not otherwise be affordable for individual members. One popular example of these NFT-centric DAOs is PleasrDAO, which made headlines in April of 2021 for its USD$5.4M acquisition of Edward Snowden’s Stay Free NFT.
Members of the DAO then collectively share in the acquired token’s ownership. Famously, PleasrDAO fractionalized the original Doge NFT – which it had acquired for USD$4M in mid-June – through the Fractional marketplace.
Another method for achieving collective ownership over high-value NFTs comes in the form of the PartyBid protocol.
Nft fractionalization platform
A majority of the NFTs that holders choose to fractionalize are expensive, which means holders may end up waiting quite some time until someone puts in a large enough offer for the seller to accept, so it makes sense that they would want to divide their NFTs into smaller and more affordable shares. This fractionalization allows for more liquidity because you can sell pieces for a lower price as opposed to waiting for someone who can afford the entire NFT.
Increased investment opportunities
Nearly everyone who knows about NFTs is chomping at the bit to hold a highly sought-after asset, but unfortunately, many of us can’t afford the high price tag. So by dividing something expensive into something more affordable, there are more investment opportunities being made.
Fractionalized nfts securities
What Is a Fractional NFT?
A fractional NFT is simply a whole NFT that has been divided into smaller fractions, allowing different numbers of people to claim ownership of a piece of the same NFT. The NFT is fractionalized using a smart contract that generates a set number of tokens linked to the indivisible original.
These fractional tokens give each holder a percentage of ownership of an NFT, and can be traded or exchanged on secondary markets.
Non-fungible tokens (or NFTs) are ERC-721 tokens created by an indivisible smart contract on the Ethereum blockchain. Since the tokens are indivisible and impossible to replicate, they are the perfect medium for individual intellectual property tracing.
Fractionalized nft projects
The upshot of this has been that unique and trend-setting projects – CryptoPunks and Bored Ape Yacht Club being among the most prominent – have attracted inflated valuations and thereby left many interested buyers priced-out. High valuations have also been a scourge for investors seeking to diversify their portfolios but lacking adequate capital to do so.
This matter has also fed into liquidity issues for the holders of high-value NFTs, who are left with little choice to realize passive returns on their investments and thus are forced to keep their tokens idle.
Fractionalization remedies many of these valuation and liquidity issues by allowing for a sort of shared ownership of tokens. In essence, the process allows NFT holders to fractionalize their ownership in NFTs and sell shares to interested buyers.
The direct and mutual benefits of this are unequivocally clear.
Fractionalized nft marketplace
Combined, they account for just over USD$200M, representing over 83% of the wider SMC index. For perspective, that figure eclipses the 3rd highest market capitalization in the cryptocurrency market (Cardano) and represents over 50% of the market capitalization of Ethereum. The relative scale of the fractionalized market paints a potentially more representative image of the amount of interest in the concept.
The Legal Implications of Fractionalizing
Fractional ownership shares in NFTs pose many of the same legal ambiguities as the trading and ownership of the NFTs themselves. One such legal challenge deals with the matter of intellectual property rights and who ultimately can claim ownership over the underlying token’s artwork.
Fractionalized nft dao
The downside to this is that as prices continue to rise, sales begin to slow, and the market becomes illiquid.
Fractionalization could keep the NFT market moving by allowing investors with less capital to stake partial ownership of some of these big-ticket items.
The upshot of this is that it allows the price of an NFT to be determined. One of the main causes of market illiquidity is not having a good method of price discovery.
If you don’t really know what something’s worth, people are less likely to invest in it.
Fractionalization, again, helps here. Using a smart contract to divide the NFT into fungible fractions (ERC-20 tokens) that are traded on the open market enabled a generalized picture to emerge.
Fractionalized nfts sec
Fractional – (https://fractional.art/)
A popular fractional nft platform used among collectors is ‘fractional.art’, where you can co-own an nft digital collectible from some of the most well-known collections. It allows NFTs to become represented by billions of ERC-20 tokens. Over 39,000 wallets own fractions, according to their platform.
2. Liquid Marketplace – (https://www.liquidmarketplace.io/)
A new nft marketplace launched by Logan Paul is called ‘LiquidMarketplace.io.’ It specializes in the fractionalization of physical and digital collectibles, with the ability to earn royalties, unlike any other marketplace.
Currently offering exclusive top tier physical collectibles from his collection, such as
1. Logan Paul’s Personal WOTC Pokémon 1st Edition Base Set Booster Box
Solana nft fractionalization
Some collections have become so valuable that the price of owning a single NFT has become prohibitively expensive. While not every NFT collection has acquired the infamy of Beeple’s art or cartoon ape avatars from Bored Ape Yacht Club, the ones that are worth collecting can still be quite pricey.
It also doesn’t help that NFTs are one-of-a-kind tokens, which means acquiring them on crypto markets can be difficult, due to a lack of liquidity.
With such high barriers to entry, fractionalization is a potential solution to all of these problems. Breaking down an NFT into smaller pieces democratizes this new market, allowing interested parties with limited funds to affordably invest.
This not only benefits investors, but also NFTs in general, because it brings liquidity to the market.
Fractionalisation of NFTs is a key development in a maturing market. These assets amount to more than just a craze for artists to sell digital art at sky-high valuations.
Non-fungible tokens are also being used in sophisticated ways such as collateral for lending products.
Divvying up ownership of NFTs enables more people to hold a piece of the asset. Like with a lot in DeFi, it is unclear how top-tier regulators intend to regulate NFTs. However, ventures offering fractional NFTs to any investor may not have realised the regulatory vulnerability of these assets — in short, they are morphing from collectibles into securities.
You would be hard-pressed to argue how giving fractional ownership of an asset could not be classed as equity.