When we think of NFTs, we might think of the high prices paid for a digital collector. The whole world was stunned when Beeple sold his digital artwork for $69 million. And this is no exception. Time and again insane amounts are paid for one digital artwork that we know as an NFT.
But because of these monster amounts, the average investor no longer stands a chance. Hardly anyone has a few million to invest, let alone in digital art. And that is why it is now possible to invest fractionally in an NFT.
You invest, together with others, in your favorite art and thus all own a part of the certificate of ownership. This way anyone can invest in NFTs! Find out in this article what a fractionalized NFT (F-NFT) is and how they work.
Watch the video below for a short intro to fractionalized NFTs:
NFT restrictions
the Non-fungible tokens (NFT) are more popular than ever, but they still have a lot of restrictions. Limitations affect the further growth of these NFTs. Let’s discuss some limitations:
Speculative value
Due to its digital nature, the value of this NFT is entirely speculative and dependent on market sentiment. This sentiment may reverse, or the hype may be over, directly affecting the price. Because of this, critics say that investing in NFTs is not a wise choice in the long term.
Copyright
As it is a decentralized market, there is no regulation. Therefore, investing in these speculative assets is based on trust. It sometimes happens that a digital copy of an existing work of art is minted. This is in fact a duplicate of the original and is therefore not entirely free of copyright. Therefore, always do your research before you decide to invest.
Storage
Decentralized means that you are not dependent on a central exchange and you trade on the basis of a software wallet. Trading in NFTs also takes place in a decentralized environment, but you do need networks such as OpenSea and Rarible to mint and trade your NFTs. If for whatever reason, these platforms disappear, you will not be able to trade your NFT in any way because the relevant platform is not available for this.
What is a fractionalized NFT (F-NFT)?
A fractionalized NFT (F-NFT) is an NFT where you only own a part of this non-fungible token. You share the digital proof of ownership with others, as it were. Fractionalizing means dividing one whole into different parts. We also see that in ‘traditional’ crypto, to the extent that we can call this traditional.
Contrary to what some people think, we can invest in crypto without buying an entire coin or token for it. You often hear people say that they do not have the financial means to invest in Bitcoin (BTC) because they do not just have the entire amount available.
Fortunately, you can buy a fraction of this whole, for example, you can buy 0.00001 Bitcoin according to your own wishes and financial possibilities.
By dividing an NFT into different parts, more and more people can invest in an NFT and thus also participate in this trend where digital art is traded for exorbitant amounts. Let’s look at this with an example:
The Mona Lisa is arguably the most popular painting worldwide with an estimated value of around $800 million. Now there is only one person who can own the Mona Lisa. But what if you could invest in a quarter-inch of the painting so that you too invest in art that hopefully gives a nice return in the future? By dividing these NFTs, ranging from digital art to music, into smaller wholes, anyone can own a part of a non-fungible token.
How does a fractionalized NFT work?
Before we can explain exactly how this works, we have to go back to the core of development. So, an NFT is a non-exchangeable token with a certificate of ownership. Unlike crypto such as Bitcoin (BTC) or Ethereum (ETH), which can be exchanged for each other without changing their value at the time, this is not the case with NFTs.
These tokens, regardless of their nature, exist on a particular blockchain and thus are given a token standard. At the time of writing, Ethereum’s network is the largest. The tokens that exist here are all ERC20tokens. This abbreviation characterizes the nature of the token.
These unique tokens can also exist in the Ethereum ecosystem, but then they are ERC721 tokens. on the Binance Smart Chain blockchain, these NFTs are a BEP721 token. The principle is the same, but they exist on a different network. To date, fractional investing in NFTs is still limited to the Ethereum blockchain.
The use of smart contracts is essential here. These smart contracts enable transactions based on various properties and criteria. So when you buy an NFT, you will have to buy the x amount in a certain currency, after which you can claim your NFT including the digital proof of ownership.
These smart contracts may also contain specifications in the code about the distribution of a particular NFT. In this way, different parts can be separated and secured from each other. This NFT is therefore also locked in a smart contract on the blockchain.
Trading NFTs in the Ethereum network is done on the basis of Ether. You pay the asking price and for this, you receive your unique NFT in your software wallet. Now you cannot split an ERC721 token, so certain ERC20 tokens are used to guarantee your share of this NFT. Each NFT has an individual token, which you can purchase. There is always a certain stock so that total stock is your entire NFT. After each bid, each investor gets his or her share of the NFT, based on these unique tokens. This is your portion, your shared certificate of ownership.
If you look up Mutant Ape Yacht Club 18026 you can see he is part of Mutant Cats. This is the first DAO to subdivide NFTs into shared ownership. These include CryptoPunks and Bored Ape Yacht Club. You can therefore invest fractionally based on FISH tokens. This is the unique token that enables fractional trading in this NFT specifically. After purchase, you will receive these originally ERC20 tokens in your wallet, in this example FISH tokens. These FISH tokens are your fractional proof of ownership for this NFT.
ERC-1155
ERC-1155 is more than just a tokens standard. This is central to the development of NFTs. It is the beginning of multi-token management. With this token standard, smart contracts can have different combinations such as non-fungible, fungible, and semi-fungible. To grow the NFT ecosystem and the number of associated applications, it was clear that a new kind of token was needed. This is to prevent problems regarding transaction volume and inefficiency. This creates the new token standard ERC-1155.
So note that when you invest individually in an NFT, you receive an ERC721 token, while when you invest fractionally you receive ERC20 tokens in the base. But because these ERC20 tokens represent a share of a fractional NFT, they fall under the token standard ERC-1155.
Liquidity pool
The price of the fraction is determined by the creator himself. They enable these fractions in a liquidity pool whereas a trading pair use the native token against Ethereum. This is possible thanks to the latest developments of Uniswap V3. From the start of the official auction, the price per fraction is dynamic and is determined by, among other things, supply and demand.
Where can you buy fractionalized NFTs?
Now that you know that you can also invest fractionally, it might also be interesting to see where you can buy part of an NFT from now on:
DAOfi
DAOfi is a decentralized exchange that makes it possible to launch your tokens yourself, whereby you also determine the bonding curve itself. This means that the price will therefore fluctuate based on a certain formula that has been determined in advance. The decentralized exchange (DEX) is popular with fractionalized art, DAO tokens, Defi project tokens, and also meme coins.
Fractional.art
Fractional.art is the decentralized platform par excellence for investing in a fractionalized NFT. Buy, sell or trade tokens partially owned by a popular or unique NFT. You can also easily mint your own NFT here. Fractional.art supports the following wallets:
- MetaMask
- WalletConnect
- Coinbase Wallet
- Portis
Advantages of fractionalized NFTs (F-NFT)
By enabling fractional investing in NFTs, more and more people will have the opportunity to take their chances. Popular collections are currently only reserved for wealthy investors.
From now on, anyone can invest in their favorite digital art and therefore own only part of an NFT. Given the popularity of NFTs, this can also speed up adoption.
Passive Income
We now know that you can still earn money in the future with your own NFT. For example, a creator can determine that with every sale he gets a certain percentage. Suppose he sells his NFT for $10,000 and charges a percentage of 5% on each sale.
This means that he gets $500 every time with every trade. Not too bad, right? But if you have a fractionalized NFT, you can also apply this to anyone who shares ownership of your NFT.
Disadvantages of fractionalized NFTs (F-NFT)
Where there are advantages, there are often disadvantages. The main disadvantage of fractionalized NFTs is the complexity surrounding publicity rights and intellectual property. At the moment we only see this application in digital art, but if we start dividing intellectual property such as photos or written texts into different owners. How will this take legal shape when one investor uses this content for publication, what are the consequences, and such.
Currently, these fractionalized NFTs are only possible in the Ethereum network. As you would expect, this is still accompanied by often much too high gas fees. In the future, when this will expand to other networks, this investment threshold will be lowered again.
Investing in NFTs is not without risks. The value of your investment can rise, but also fall. Be aware that not every form of digital art will hold its value. Therefore, always perform extensive research on which NFT you invest in. Fractional investing logically has the same risks.
Conclusion
Chances are you’ve heard of NFTs before without knowing what they actually are. We see that, for example, the mainstream media is now also talking about NFTs, and in particular about the sky-high amounts that come with them. The fact that it is a market where many people can earn a lot of money is motivating. But the current prices for one NFT make it impossible for the average man to invest in digital art, or any form of NFT for that matter. From now on we can all invest in our favorite digital art for a minimal amount. Through shared ownership, we can jointly own a unique NFT that will hopefully increase in value in the future!
The market for NFTs is still very young, while fractionalized NFTs are already another development. It is, therefore, necessary to allow sufficient time for the development of NFTs, only in this way can we build a solid future in which these fractionalized NFTs, in whatever form, can come into their own.
