Fractional NFT is an innovative asset class that is becoming increasingly popular among those who want to minimize risk and have a piece of the NFT pie. Through fractional ownership, investors can own a fraction of an asset, such as virtual real estate or NFT, and share the benefits of the asset accordingly. When an NFT is split into smaller parts for investment purposes, it is called a fractional NFT. Fractional ownership allows F-NFT holders to enjoy the usage rights for their fraction of the asset.
Own Top NFTs Fractionally
Following the crypto craze in 2021, NFTs surged in popularity due to their unique nature, making them a highly coveted asset class. Popular NFT collections like CryptoPunks were sold for a staggering $17 million by Christie’s auction house. Digital artwork such as Beeple’s “Everydays: The First 5000 Days” was sold for $69 million in March 2021. With OpenSea, one of the largest NFT marketplaces, experiencing an average trading volume of $75 million a day in Q1 2022, it became clear how successful this asset was becoming.
These events further display the immense success of NFTs; however, this benefit is mostly enjoyed by those with deep pockets and capital to invest. Though NFTs may be the future of art and digital collectibles among the affluent, the full capacities of this unique asset class remain largely untapped for those without access to financial clout.
As a result, institutional investors may be hesitant to invest in NFTs. Artists may struggle to commercialize their work, especially if they lack a large following or the finances to launch their own NFT platform. So, F-NFT enables small and mid-tier investors to own a piece of an NFT that would otherwise be expensive by breaking it down into smaller fractions.
What Is a Fractional NFT?
A fractional NFT is part of an NFT split into multiple, smaller tokens. Each token holder will possess a percentage of the original asset. This enables multiple owners fractional ownership of an otherwise indivisible NFT. Fractional NFT is created with smart contracts that can be exchanged or traded on certain exchanges that support them. It’s a great way to get involved with this growing market and join others in experiencing this novel concept of fractional ownership of digital assets.
How does Fractional NFT work?
Traditionally NFTs are indivisible and use Ethereum’s ERC-721 standard. To create a Fractional NFT, NFTs are locked inside a smart contract. The smart contract will detail how many tokens to generate, and what their base price, metadata, and other properties should be. The ERC-721 token is then converted into multiple ERC-20 tokens. Each token generated is a partial stake in the ownership of the entire NFT and can be sold at any given time with a fixed or variable price. With fractional NFT, not everyone needs to purchase an entire NFT to enter the premium NFT market – they now have access to an F-NFT at much lower prices.
In the art world, F-NFT is changing the game by making it possible for fractional ownership of iconic works of digital art. Let’s understand this with the example of a Bored Ape Yacht Club. The floor price on Opensea is approximately 73 ETHs. That is a whopping $120,000. This high price point makes it difficult for many collectors to purchase a BAYC NFT outright. Through fractional ownership enabled by smart contracts, iconic digital artwork costing $1 million can be split into 10,000 ERC-20 tokens, each priced at just $1,200.
Therefore, this approach of fractional ownership to investing has made rare and exquisite digital art more accessible while simultaneously opening up opportunities to a wider pool of investors. The innovation of fractional NFT has opened up exciting new possibilities on the blockchain beyond just Ethereum. Now fractional ownership is possible on multiple blockchains such as Solana (SOL), Polygon (MATIC), and Cardano (ADA). These networks have advantages over Ethereum, like lower gas fees and faster transaction speeds. This makes fractional ownership more feasible. With F-NFT, the liquidity of a single item can be unlocked and capitalized in many ways.
What is the difference between Fractional NFT and traditional NFT?
A Fractional NFT offers fractional ownership of a complete NFT and provides opportunities for investments that may be more accessible than those involving whole NFTs. Fractional ownership is purchasing fractional pieces of an asset that have the potential to appreciate. This fractionalization process is also reversible – all fractional investors can eventually pool their capital to unlock the original NFT token when they collectively purchase all fractions from other shareholders.
The F-NFT offers fractional ownership of any given NFT, which can be beneficial in certain cases. This special token enables holders to initiate a buyback option by transferring a specific amount to the smart contract, starting an auction for a fixed period. If the buyout is successful within the set timeframe, all fractions are returned to the smart contract, and full ownership is given to the buyer. Other F-NFT holders have adequate time to decide whether to partake in the buyback.
Benefits of a Fractional NFT
1. Democratization
The astronomical prices of some Non-Fungible Tokens (NFTs) can be prohibitive, preventing smaller investors from entering the market. To make NFTs more accessible to a broader range of investors, fractional ownership has emerged as a new option that transforms an expensive asset into slices. What fractional NFT does is it provides the same rights of ownership but over different, fractionalized parts to make it more affordable for individual buyers. Thus lowering ownership costs. Hence, more individuals have access to invest in these digital tokens.
2. Greater liquidity
NFTs have become increasingly popular due to their one-of-a-kind uniqueness. However, this factor also limits access to these tokens to wealthier investors. This is where fractionalized NFTs (F-NFTs) come in: they offer a solution to market liquidity issues by allowing investors to purchase fractionalized amounts of an NFT at a lower price and more immediate availability.
How to Access a Fractional NFT?
1. Ommniverse
Ommniverse is a fractional NFT marketplace where you can buy, sell and trade F-NFT. The platform focuses on fractional ownership through better accessibility, enhanced liquidity, diversity, and cheaper gas expenses. But, its edge is in fractional NFT, which increases the number of buyers and boosts selling chances globally.
2. NFTfy
NFTfy is a fractionalized marketplace that simplifies the process of fractional ownership into three simple stages. It also allows you to sell your fractions collectively. This means you may sell to a group of people (token holders) before they are fractionalized and purchased from a group of people.
3. Fractional.art
Fractional.art is making fractional ownership of art more accessible with their fractional protocol and NFT communities. The fractional protocol empowers F-NFT, digital artifacts that allow fractional ownership of the artwork, and fractional trading in the secondary market.
Fractional NFT and fractional ownership are upcoming trends in the buzzing field of cryptocurrency. By enabling greater liquidity, fractional ownership opens up the market to more investors and significantly broadens the types of investment strategies that can be employed. However, just like any other asset class, F-NFT comes with its own set of risks and rewards. Always DYOR before investing.