Want to be owner of blue chip collection? It’s democratized now.
Let’s talk about the fractalization of nft!
An F-NFT, also referred to as a fractional NFT, is an NFT that has been broken into pieces to be sold individually.
NFT can be split into millions of fungible tokens, and original NFT is locked in storage. fungible tokens provide ownership of the NFT in a % ratio.
F-NFT allows multiple people to own part of the same item.
Is NFT fractionalization necessary?
- For the owner, splitting unlock finance in an illiquid market.
- Fractional NFTs provide more liquidity for the market
- Fractions attract small investors
- Fractions determine the market value of rare NFTs.
- The number of enthusiasts and community is increasing.
Democratization allows you to maintain interest in the project among a large number of market participants.
- Even if one participant sells his share at a price below the market price, this will not affect the value of other fractions and NFTs in any way.
The owner of the NFT, who splits his asset into fractions, receives a curator’s reward from the NFT trading platform of his choice, the percentage of which he determines independently.
The commission price is always capped by a maximum price cap to avoid unreasonably high prices.
How are NFT and F-NFT prices related?
At the moment, there is no mechanism that prevents the fraction from deviating from the underlying asset.
Typically, the value of NFTs increases with popularity, and popularity attracts more interested owners. The growth of the main asset can provide an increase in the cost of fractions.
On the other hand, of course, there is always a chance that NFTs may depreciate, as happens with cryptocurrencies. In this case, the risks are significantly lower for the co-owners, since they are limited only by their share.
if the NFT 1 of the owner has depreciated, all the risks are on it.
In June 2021, PleasrDAO bought the DogeNFT for about $4 million at the time.
In September 2021, the decentralized autonomous organization fractionalized the NFT into $DOG tokens and then auctioned off 20% of them. The high demand brought the valuation of the NFT to $225 million. And fans could buy the token for as little as $1.
Redemption of NFT by the owner.
Previously, the only way to recreate the NFT was to buy back all sold fractions from their respective owners.
However, if they refuse to sell, or if the recovery keys are lost — you won’t have a way to recreate the NFT.
New protocols make possible to recreate NFTs through buyback auctions. For example Bridgesplit. The protocol allows you to run an auction and vote holders.
When voting, token holders vote for:
- To Allow redeem or not
- The minimum price at which it can be redeemed
The buyback is activated when at least 51% of the token holders have voted “Yes” to enable the buyback. Read more here if you are interested in details.
What services can be used for splitting and buying F-NFT tokens
Fungible tokens can be bought on fractional platforms or secondary markets like Uniswap.
Unic.ly is a popular platform. To fractionate NFTs on Unic.ly, an NFT holder needs to connect their wallet and create a fungible uToken
uToken is an ERC-20 token that represents ownership of one NFT or multiple NFTs. Users can trade these tokens or stake the fractionated asset through the platform.
Fractional.art is another popular platform. As unic.ly it allows NFT holders to fractionate their NFTs and redeem ETH in return. Fractional does not support unic.ly’s staking options, but offers more flexibility for developers due to its basic permissionless protocol design. Anyone who wants to use the Fractional protocol can do so, while uni.cly’s more complex set of smart contracts limits developers.
Nftx.io is very different from uni.cly and Fractional. Nftx allows NFTs of equal value to be pooled — for example, NFTs of the same rarity into index funds. NFT holders receive vToken (ERC-20 tokens) when they add NFT to the index or buy part of the index. The vToken represents a 1:1 redemption requirement for NFTs in the index to which the user’s NFT has been added. Means that users will not necessarily receive the NFTs they deposit, as all NFTs they deposit are considered equal. Following recent criticism, Nftx introduced the option to pay a 5% markup on the price of the token and allow the user to select the NFT he or she wants from the index.
NFT fractionalization in its early stages. However, it is the next step in the development of the NFT market. Fractionalization will put more liquidity on the market. And Increase interest in NFTs through more investors.