What are Fractional NFTs? And Why We Should Know About Them?

Fractional NFTs: Changing The NFT Space

Some NFTs rise in popularity, and so do their prices, which is fantastic for investors, collectors and artists who got in the crypto space early. But what about the people trying to get into the crypto market? 

Most can’t afford to buy such expensive NFTs but can positively explore the possibilities offered by Fractionlised NFTs. The good news is that you can own and buy a piece of expensive NFTs – through NFT fractionalization. 

Fractional NFTs offer high liquidity and lowers entry barriers to a wide range of investors. The technology around us is evolving and opening up possibilities for us. You can now split NFTs and buy and own fractions of the much-sought tokens. Let us dive deeper into this, find out how it works, analyse its pros and cons, and get to know it inside out.

What are Fractional NFTs?

A fractional NFT is simply a non-fungible token divided into smaller pieces. It allows different people to claim partial ownership of the same Non-Fungible token. Since an NFT is unique and cannot be duplicated, fractional NFTs stretch boundaries making it possible by dividing their ownership. 

Famous artworks or digital assets, such as real estate, art, and yachts, are sold as NFTs worth thousands and millions of dollars. Such high-value tokens are illiquid and unaffordable for a majority of people. So it is here where Fractionalized NFTs arrive. You can buy an F-NFT and become the owner of a small portion of the NFT and its value.

The fractionalization process takes place using smart contracts. A contract creates a specific number of fungible tokens that are related to the inseparable original. Each part – or fraction – provides the holders with a percentage of ownership of the actual NFT. It is possible to trade the fungible tokens depicting a stake in the fractional NFT on an exchange or marketplace at a fraction of the cost. 

Can Fractional NFTs Be Reversed?

It is, in fact, possible to reverse the fractionalization process and turn a Fractional NFT back into a complete NFT. Generally, the smart contract that fractionalizes an NFT has a buyout option that lets a Fractional NFT holder purchase all the fractions to unlock the original NFT. The other holders then have time to make a decision. If the buyout is successful, the fraction return to the smart contract, and the buyer gets full ownership of the NFT. 

Benefits of Fractional NFTs:

The world needs fractional NFTs for various reasons: they provide better liquidity, make investment affordable, help levy NFT market value, and enable DeFi integration. 

Let’s consider some of its benefits in detail.

Democratisation

The increasing prices of some of the most popular NFTs are unaffordable for many, which shuts out small investors or collectors from participating in the NFT space. Fractionalizing an expensive NFT lowers costs and makes it available to more people. 

Higher Liquidity

Assets such as real estate, luxury goods, and high-class art can be turned into NFTs and fractionalized in order to boost their liquidity. When an NFT is split into multiple tokens and sold individually, it attracts the attention of a lot of people. As a result, the asset becomes a major topic of discussion and gets sold quicker.

Affordable Investment

Fractional NFTs lower the bar for the entry of new investors and open up new possibilities for investors. Even if the opportunities are limited, they are new to the NFT world and can join in the trend and invest in valuable tokens backed by real assets.

Monetization opportunities

You can easily monetize your assets by trading them in tokenized fractions. If you are running your own NFT marketplace, introducing fractional NFTs will bring you financial benefits as it will help draw more investors to your platform.

Increased visibility

With fractionalization, creators can get even greater exposure online because they are able to reach a vaster audience in a more liquid market.

Conclusion

Fractional NFTs may be the next big thing as it continues to make the NFT world more accessible. The use of NFT fractionalization allows for higher liquidity and, as a result, infinite investment strategy options. It expands the market to a substantially more extensive range of investors.

Although the F-NFT marketplace may face some regulatory problems shortly, the future seems bright due to the number of real-time applications being developed. 

We are an NFT marketplace development company working on blockchain technology and can help you trade and earn profits on the NFT marketplace.

Connect with our professionals to share your business essentials. Request a quote now!