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If you know anything about NFTs, you would know they are not divisible. So let me tell you about Fractional NFTs (F-NFT) and why and how they are a thing.
First, NFTs have reached a place where the project is either dead in the water or selling for buku bucks. Projects defying gravity are Cryptopunks with #7523 sold for $11.75 million, Beeple’s EVERYDAYS: THE FIRST 5000 DAYS sold for $69.3 million, and the recent rising star Bored Ape Yacht Club, #3749 sold for $2.9 million. At these prices, not everyone can buy into these projects. That is where fractionalization changed the game.
Fractional NFTs
Fractionalization allows individuals to own a piece of a very expensive NFT at a vastly lower price, of course. Fractional NFTs break a single NFT into smaller parts, much like a puzzle, and these pieces may be bought and traded.
First, let us clarify what non-fungible tokens and fungible tokens are before I tell you how we turn something non-fungible into something fungible. Non-fungible tokens are unique items that cannot be duplicated. On the other hand, Fungible tokens are interchangeable; $ 1 is always $1.
The ERC-721 standard is used to create NFTs, which are indivisible tokens. A smart contract is linked to the ERC-721 NFT and deployed with an ERC-20 token which is divisible. This process allows the NFT to split into pieces, and anyone can own a percentage of the pieces. The ERC20 standard enables trading, exchange, and secondary market ownership not that different from buying a selling Ethereum. If one of the NFT's owners decides to sell, the aggregate value held by other stakeholders will not be affected.
Fractional NFTs can be created and purchased on a few platforms such as Otis, Unicly, Fractional.art, and Niftex.com.
Pros
Accessibility - Splitting an NFT into smaller tokens makes them easily accessible to investors without deep pockets. Investors can benefit from the low entry price instead of breaking the bank whenever they want an NFT they like.
Liquidity - The higher the NFTs price, it is not being bought and sold as frequently. When it is Fractional, it allows the holder to get some liquidity from their NFT while holding it by selling parts instead of waiting for the entire NFT to be sold.
Defi - Fractionalization opens the door for staking and yield farming options for these newly created tokens.
Cons
Not Regulated - Most crypto investments exist outside of traditional regulations, and your investment in a Fractional NFT is as good as the smart contract. Regulators could crack down on it because of its similarities to stocks in its token structure that allows for partial ownership.
Smart Contract Risk - I touched on it before, but your investment is safe until someone exploits a bug in the system. Smart contracts are as good as the development team, and even when they are cautious, something could always go wrong.
Finally
Fractional NFTs have not quite gotten their stride yet, but they are still a promising sector in the Defi space. Fractional NFTs add liquidity to the Defi market and allows for the creation of new investment vehicles. NFTs are still a young sector with many possibilities for expansion beyond profile images. Fractionalization is the democratization of an already democratized industry; it allows investors of all sizes to engage in this economy.
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