Fractional NFTs: The Latest Crypto Buzz Explained

PersonOutlineIconUPYO.comCalendarTodayIcon September 26, 2022AccessTimeIcon 6 Mins Read
PersonOutlineIconUPYO.comCalendarTodayIcon September 26, 2022AccessTimeIcon Mins Read
Fractional NFTs: The Latest Crypto Buzz Explained Featured Image

Fractional NFT is a buzzword in the tech world right now. It’s the newest trend in the NFT field, potentially changing the core design of non-fungible tokens and paving the way for investors. Hence, the concept of fractional NFTs is quickly gaining traction. Let’s understand the basics of fractional non-fungible tokens and how it is advantageous.

Can several people own one single NFT?

Though most non-fungible tokens have a sole owner, thanks to fractional NFTs, now one non-fungible token can have multiple owners. Here, the parent non-fungible token gets divided into smaller parts, with every proprietor receiving a share. This has been proposed as a means of restructuring the process of NFT, making it easily accessible to average investors and art lovers.

fractional nft

If you wish to engage in or acquire non-fungible tokens, you must first grasp what fractional non-fungible tokens means and what is its working process. Continue reading to discover more about this topic.

What is an F-NFT or fractional Non-fungible token?

A fractional non-fungible token is a full non-fungible token split into smaller chunks, enabling several people to own the same token. Basically, a smart contract is utilized to fractionate the non-fungible token and produce chunks or fractions of tokens connected with the immutable parent token. Moreover, the shareholders can resell each of these small chunks of tokens on NFT platforms.

In simple terms, fractionated non-fungible tokens are paving the way for another phase in the crypto, bitcoin, and decentralized industries. As NFT is a non-fungible token, it means that it cannot be traded in place of any other asset because of its similarity. Here, fractionalized non-fungible token comes into the picture. It pushes the envelope by allowing possession of an NFT to be divided. For example, if you own an authentic artwork of the famous personality Mona Lisa, there is no way to interchange that painting with any other painting. Also, you don’t get the authority to divide that painting into multiple pieces.

How do fractional non-fungible tokens work?

A non-fungible token is essentially a token that adheres to Ethereum’s ERC-721 specification. Before you can divide or fractionate a non-fungible token, it is first sealed in a smart contract, a software kept on the blockchain. It has been coded to activate instantly when specific conditions are satisfied.

According to the information submitted by the token stakeholder, the NFT contract partitions the ERC-721 token into numerous parts in ERC-20 token format. The shareholder essentially determines the number of tokens to be generated, their total worth, metadata, and other attributes. Every chunk or fraction underlines the partial proprietorship of the whole non-fungible token. The parts are then offered for sale at a specified cost for a specific time or until all of them have been sold.

fractional nfts

Let’s take an example of ‘The Scream,’ a unique artwork that was sold for millions of dollars, to analyze how fractional non-fungible tokens work. Consider an NFT as a representation of this piece of artwork. There’s no doubt that its cost will be millions of dollars to attract wealthy patrons.

Now, if this expensive non-fungible token is divided into ERC tokens, a buyer can purchase a portion of it for a comparatively low cost. So, it is clear that fractionating a token makes it affordable for low- and medium-sized buyers and have a share in it.

It’s worth noting that fractionated non-fungible tokens aren’t just limited to the Ethereum network. In fact, it can be done on any crypto-based network which supports non-fungible tokens and smart contracts. For example, Solana, Tezos, and Cardano networks can help with fractionalizing non-fungible token proprietorship transfers.

What are the benefits of fractional NFT?

One of the most appealing points of an NFT would be that you acquire entire possession of a one-of-a-kind item. However, as we’ve seen with the instances above, this has resulted in price inflation for several assets. Fractionated non-fungible tokens are designed to address this issue while also providing several other advantages.

Democratization:

As soaring real estate prices have forcefully shut down a substantial portion of the market, the same is the case with some popular NFTs that have become unavailable. When an asset is fractionalized, it becomes approachable to a wider range of people, who can then decide to purchase a share for a proprietorship or as an investment vehicle.

Price Discovery:

NFT price discovery, a market-based method for determining a token’s value, is more effective with fractional non-fungible tokens.

It is usually difficult to price newly created NFTs because they don’t have much transaction history. However, through fractionalization, non-fungible tokens can be divided into multiple parts and then released on the market for bidding, making NFT pricing easier. Also, this helps estimate the price of an NFT based on its market demand.

As a result, F-NFTs provide a rapid approach to evaluating the market value of non-fungible tokens that are distinctive and scarce. In addition, whenever the price of an NFT rises, so does the worth of its portions. However, as has always been the situation with currencies, an NFT’s price can fall unexpectedly, and the fractions’ prices will likewise fall simultaneously.

fractionalized nfts

Greater Liquidity:

Because of the restricted amount of customers available due to high costs, valuable things can sit on the marketplace for days before finding a buyer. When a non-fungible token is fractionalized, a larger pool of investors can buy more inexpensive portions on online marketplaces with less exposure than paying a hefty price for an overpriced asset.

Curator Incentives:

The non-fungible token marketplace pays a curator fee to an NFT holder who splits their resource into parts. The value of this payment can be specified and updated by the proprietor. However, it is equivalent to the total price cap to discourage aggressive pricing.

Perfect for Artists:

While the initial ideas have concentrated on the buyer’s perspective, fractionalizing NFTs can benefit artists by allowing them to reach more people in a much more liquid market.

Is a fractionalized NFT a kind of security?

Often, fractionalized NFT is considered a kind of security. For instance, if someone wants to combine multiple NFTs into a single basket, trade fractional non-fungible tokens, or pick one NFT and sell pieces, then there are chances that you’re not producing an investment product, but it is a security.

Can I buy a fraction of NFT?

Buying a fraction of NFT is entirely possible. If you are trading on the platform that offers fractional NFT for sale, you can make your purchase for the desired fractional NFT projects there. This is the perfect option for those people who do not have enough funds to invest in high-priced and popular NFTs. Fractional non-fungible token (F NFT) allows them to purchase a part of NFT of their choice that comes within their budget.

nft fractional ownership

Where to buy fraction NFT?

Though multiple platforms let you buy fractional NFTs, you can count on UPYO for safe and secure transactions. The platform allows users to make an investment in NFT collectibles, maintain their NFT portfolio, and mark their participation in real-time trading. Moreover, the platform allows investors to purchase fractional interests in digital assets.

Final words

The non-fungible token space is becoming increasingly famous, and as technology progresses, one may likely discover even more exciting innovations and application cases.

Although the concept of fractional non-fungible tokens is in its early stages, it promises to be the forthcoming sensation in the rapidly growing crypto field. Fractionalization enables more variance and, as a result, infinite investment opportunities. It broadens the business, ensuring that fractional non-fungible tokens will be at the vanguard of the next wave of technological profits and securities monetization.

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