In previous blog articles, we’ve covered the basics around cryptocurrency, a broad view of NFTs, and how to generate your own NFT collection.
👀 In this article, we’ll take a closer look at fractional NFTs and provide information on what they are and how they work. Here is our brief guide to get you on a clearer path to understanding.
❓ WHAT EXACTLY ARE FRACTIONAL NFTs?
The fractionalization of assets, such as shares or luxury assets (such as private jets✈️, yachts⛵ and real estate🏠), where buyers share ownership of an asset, is not a new technique.
👉 Fractional NFTs, also known as a fractionalized NFTs or F-NFTs, are non-fungible tokens that have been broken into smaller fragments, allowing several people to claim ownership of a piece of the same NFT.
The smaller fractions of the NFT allow any individual to hold a share in the ownership of the same NFT alongside many others. Smart contracts📄 help in creating a specific quantity of ownership tokens associated with the original NFT. Fractional tokens offer a share in the ownership of the NFT to every token holder.
🤷♀️ THE DIFFERENCE BETWEEN TRADITIONAL NFTs AND F-NFTs
Fractional NFTs are not different from traditional NFTs in their technical design. However, the striking difference with fractional non-fungible tokens is the division of the NFT into smaller pieces, or fractions.
Traditional NFTs are whole entities, usually owned by a single buyer or an organization representing several NFT collectors. F-NFTs are just smaller shares of the original NFT that are collectively owned by multiple investors.
🤷♂️ WHY ARE FRACTIONAL NFTs NEEDED?
The rising popularity of traditional NFTs has fuelled unreal growth in their pricing📈 making NFTs from popular collections unaffordable to many and a barrier to entry into the NFT market. Fractional NFTs offer NFT enthusiasts a way to collect and own a fraction of an NFT – and this has created a smaller microeconomy of fractionalized digital assets.
⚙️ HOW DO FRACTIONAL NFTs WORK?
Before fractionalizing an NFT, it must be locked🔒 in a smart contract that works to divide the token into multiple fractions as per its specified instructions. If this were done on the Ethereum blockchain, the F-NFTs created would be ERC-20 tokens (in comparison to the ERC-721 token standard of the original NFT). Every ERC-20 token is a fraction of the original NFT and indicates a partial stake in ownership of the whole original NFT.
🛍️ POPULAR F-NFT MARKETPLACES
OpenSea – the most popular NFT marketplace offers fractionalized NFTs on its platform.
Otis – this NFT investment platform is a popular option for fractionalized art.
Unicly – combines NFTs and DeFi into an all-in-one platform to create, fractionalize and trade NFTs.
Fractional.art – offers NFT minting and trading as well as the option to fractionalize any NFT.
Dank Bank – allows users to trade and collect fractionals of memes and other iconic moments in internet history.
🖼️ FRACTIONAL NFT EXAMPLES
Popular NFTs that have been fractionalized have been from renowned collections such as CryptoPunks, Bored Ape Yacht Club, Cool Cats and Meebits.
✨ In April 2021, 50 CryptoPunks were tokenized into 250 million uPunks on NFT marketplace Unicly.
✨ One of the most popular F-NFTs is the Doge Meme NFT featuring a photo of the rescued Shiba Inu dog Kabosu, which became the mascot for Dogecoin.
In June 2021, the owner of the dog and the image, Atsuko Sato, auctioned the meme off to a group of NFT collectors, known as PleasrDAO, for a record-breaking USD$4 million. PleasrDAO then fractionalized the NFT into 17 billion “$DOG” tokens. As a result, interested collectors and buyers can now own a fraction of the Doge NFT easily.
✨ Singer and songwriter🎤 Grimes created the NFTs Newborn 1 & 3, valued at around USD$6,400.
In July 2021, fractional ownership platform Otis bought and fractionalized the pieces, listing the F-NFTs for sale at just USD$10 per share.
✔️❌ FRACTIONAL NFT ADVANTAGES & DISADVANTAGES
✔️ Democratization of NFT ownership lowers barriers to costly NFTs opening them up to a wider range of investors.
✔️ F-NFTs alleviate liquidity💧 limitations and can be easily traded on secondary markets.
✔️ Can be used as collateral for an NFT loan.
✔️ Fractionalization improves price discovery🔎 whereby the market determines an asset's optimal price through investor bids on each fraction.
✔️ NFT owners who fractionalize their NFT can earn annual curator fees💰 paid by fractional NFT marketplaces.
❌ Market volatility📈📉
❌ Undesirable auction buyouts💸 can see original holders lose money.
❌ F-NFT security could be compromised by flawed smart contract📄 vulnerabilities.
❌ F-NFTs could face regulatory issues⚖️ if they are considered a security, as well as legal issues such as rights of publicity, IP (Intellectual Property) issues as well as contract issues.
🔮 FRACTIONAL NFTs: LOOKING AHEAD
Fractional NFTs offer an accessible entry point into the world of NFTs, allowing the general public to participate in ownership of expensive blue-chip NFTs. They provide opportunities for asset ownership in art, real estate and NFT gaming.
Fractionalization increases liquidity and trading possibilities, while caution should be exercised as not all tokens may increase in value. Fractional NFTs offer a simple, affordable way to diversify portfolios and benefit from the potential upside in the NFT space.
👉 EARNING NFTs WITH BLOOM
📲.The Bloom shopper rewards app allows you to earn NFTs and other crypto (like Bitcoin, Ethereum and a range of other altcoins) with every purchase made on your Visa card💳.
🦉 All you need to do is download the Bloom app, register an account, link your Visa card and shop anywhere using your credit or debit card.
💰 With every purchase, you will earn Bloom Coins by simply using your Visa card💳. The more you use your card, the more Bloom Coins you will earn.
🎁 Bloom Coins earned can be redeemed for rewards within the app, such as NFTs.
🆓 Converting crypto on Bloom is free of charge and has no gas fees!
💎 Earn exclusive 3x Bloom Coin rewards with a Premium Membership.
The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Bloom does not recommend that any cryptocurrency or NFTs should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.