What are Fractional NFTs? Use Cases and Advantages

A fractional NFT is created by dividing a single NFT into smaller, equal parts, which can be claimed by multiple individuals as their own. This is accomplished through the use of a smart contract that generates a fixed number of tokens that are connected to the indivisible NFT. These fractional tokens represent a percentage of ownership in the NFT and can be bought and sold on secondary markets. In this way, a fractional NFT allows multiple people to own a piece of the same NFT.

What are NFTs? Why Fractional NFTs are important?

NFTs, aka non-fungible tokens, signify a new, transparent, decentralized era of asset ownership.One of the main features that set NFTs apart is the guaranteed unique possession. An NFT is essentially a unique token that cannot be copied or faked.

However, the NFT holders’ ability to use their assets is severely constrained by this exclusivity. Due to this, industry innovators have pushed the limits of what is feasible for NFTs, opening up possibilities for fractional ownership.

Crypto investors can own a portion of a large pie thanks to fractionalization, with minimal to no risk of being taken advantage of. The idea is comparable to having stock in a corporation. Small- as well as mid-tier investors, can now own NFTs as opposed to merely whales with large bank balances.

Let’s understand the concept of fractional NFTs in detail.

Understanding Fractional NFTS

A fractional NFT is a group of fungible tokens linked to a whole or a group of NFTs (e.g. various CryptoPunk NFTs). As the name implies, it suggests evenly shared ownership of the NFT.

When an NFT gets fractionalized, the actual NFT is locked away in a safe, and a finite number of fungible tokens are created to signify ownership of the fractionalized NFT. Using fractional NFT platforms like fractional.art, such fungible tokens can indeed be purchased. They can also be sold on secondary marketplaces like Uniswap. Fungible tokens are also produced by some NFT projects. These tokens don’t signify a portion of the collection’s ownership.

Use Cases Related To Fractional NFTS

Fractional NFTs & Real Estate

By substituting mediators using smart contracts to facilitate a quick and secure transfer of ownership, NFTs can substantially accelerate the process of purchasing real estate.

Other significant advantages of turning a real estate asset into an NFT include immediate ownership resolution and a streamlined transaction process. Additionally, since the ownership, as well as rights history, could be directly recorded on a blockchain, it is typically quick and simple to verify transaction information.

Fractional NFTs & Metaverse

As the idea spreads, we might expect to see a huge rise in support for initiatives involving the metaverse. Fractional NFTs can indeed be utilized to enable conglomerates, groups of investors, and even solitary buyers to band together and purchase digital assets akin as virtual land as well as other types of virtual assets well within virtual world.

Fractional NFTs & Gaming

You can buy, sell, and own numerous in-game products, among which are NFTs, in the majority of play-to-earn cryptocurrency games. F-NFTs can be used in these multiplayer games to let players pool their resources and trade pricey in-game assets by trading in these fractionalized holdings.

By offering fractionalized holdings of super duper rare Axies, one of its most well-liked in-game NFT assets, Axie Infinity, which is an NFT-based internet video game, is already exploring the viability of Fractional NFT trade.

Fractional NFTs & Arts

The obvious one is digital art, and fractionalizing a work of real-world art is not at all hindered. The only remaining uncertainty is whether this invention would be accepted by the extremely conservative market and whether it would create more issues than it’d address. In theory, real-world art would also enjoy all the advantages mentioned above, such as improved liquidity and democratization.

Fractional NFTs Compared to Traditional NFTs

Fractional NFTs represent a portion of ownership in a full NFT. An NFT is a single unit that cannot be split. An Fractional NFT represents a portion of the entire.

Furthermore, fractionalization can be reversed. The investor can trade his shares of the main NFT as they like thanks to the smart contract’s buyout option. When a holder of an F-NFT transfers their share back to that same smart contract, it starts a buyback auction that lasts for a set amount of time. During that time, the other holders may decide. If the buyout proceeds, the fractions are returned back to its smart contract and the buyer acquires actual possession of the NFT.

Advantages you get for fractionalizing NFTs

High liquidity

NFTs have value since they are uncommon. They are nonetheless less liquid as a result than many other trading digital assets. Due to its ability to allow new investors to possess assets collectively, Fractional NFTs increase liquidity in the NFT market. The quickest and most efficient way to sell pricey NFTs is through fractionalization. Therefore, you can fractionalize an expensive NFT into as numerous components as necessary to achieve the desired degree of accessibility if you own one and are having trouble selling it. NFTs are now more enticing to investors thanks to fractionalization, which has also successfully addressed the liquidity issue this asset class was having.

Curator rewards

If the NFT owner divides their resource into divisions, the curator fee will be paid by the NFT platform of the preference. This fee has a threshold to discourage overpricing, but the proprietor is allowed to choose and change it.

Successful price discovery

NFTs can efficiently find their prices thanks to fractional NFTs. The method by which a marketplace chooses the acceptable value for an asset is known as price discovery. Pricing newly formed NFTs and NFTs with little to no trade history is typically challenging.

By enabling the division of an NFT into several sections, which may then be made available to the market for bidding, fractionalization facilitates the price of NFTs. This aids in determining an NFT’s price depending on market demand. As a result, fractional NFTs provide a rapid method for determining the valuation of rare and special NFTs.

Related NFT posts:

NFT Staking: What Does It Mean and How Does It Work?
What are NFT Scams?
NFT Scammers Are Just As Creative As The Artists Themselves

Final Thoughts

Although fractional NFTs are still in their infancy, it appears that they will become the next big thing in the ever-expanding crypto market. Greater liquidity is made possible by NFT fractionalization, opening up an infinite number of investing strategy options. By allowing access to a much larger pool of potential investors, it ensures that Fractional NFTs will drive the upcoming wave of monetizing of digital assets. As the NFT industry becomes more accessible, fractional NFTs may be the next development to keep an eye on. Fractional NFTs are an option to consider if you’ve been admiring a specific NFT collection but were hesitant to buy due to the exorbitant cost.

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