blockchain technology, nfts, and more

Fractional NFTs 101 – top facts you need to know

NFTs are certainly one of the most phenomenal highlights of 2021. The privilege of exclusive ownership of a rare collectible in a digital form is winning hearts all over. The most expensive NFTs, that are being sold for millions today, started just with a few hundred dollars or even less. It’s self-explanatory why investors are lining up for putting money in blockchain technology, nfts, and more. Interestingly, the concept of NFT is evolving to introduce new iterations over time. One of the latest launches from the contemporary NFT space is fractional NFT.

Fractional NFTs can be claimed to be a welcome launch from the NFT world. Among its many benefits, one of the most crucial is improved accessibility for investors. This one factor single-handedly has surged the new NFT industry to cross $200 million in 2021, thereby leading to $21.33 billion by the final lap of 2022.

So, how do you define fractional NFTs? Also, how does it help the investors? The post below offers a brief on the top facts you need to know about this emerging asset in the NFT space.

Fractional NFTs- overview

As mentioned, fractional NFTs are a form of NFT but with a slight twist from regular NFTs.

Sharing the fundamentals with regular NFTs, fractional NFTs too are developed on the blockchain platform. Then, fractional NFTs too are operated through smart contracts. But, the main difference is while regular NFTs offer single ownership, fractional NFTs offer co-ownership shared by multiple owners. You can say that it’s somewhat similar to investing in shares of a firm.

Fractional NFTs can represent a long line of things in the real world. The most prominent example of fractional NFTs for real-world assets is real estate. Then, fractional NFTs are also utilized for metaverse investments. Another common usage of fractional NFT is for high-profile and exclusive P2E in-game characters that are otherwise too overwhelming to purchase for one single player. Read more to buy bitcoins.

NFT divided in fractions

A fractional NFT is an NFT project that has been divided into several fragments. The number of fractions here could range anything from 10 to even 10 billion. One of the most notable fractional NFTs was the DOGE meme NFT that claimed an awe-inspiring price of $4 million. Another major fractional NFT was an NFT art by a leading musician that was divided into 17 billion fractions.

If you want technical details, well- every single NFT comprises one ERC-721 token. When you divide one piece into several fragments, you receive multiple ERC-20 tokens. Thus, each share of a fractional NFT represents an ERC-20 token.

The owner or creator of the NFT project decides the number of fractions to be made before launching the fractional NFT in the marketplace. The price of each fraction is decided by the owner/creator as well. Investors can choose to buy one share/fraction or multiple ones, depending on their budget and price of individual NFT shares. Smart contracts will shoulder the entire process.

Every co-owner can sell or trade off his portion of the NFT whenever he wants to.

Benefits of fractional NFTs

Fractional NFTs offer not one but multiple benefits.

Democratization of investment

The investment sphere has mostly been a hub of whales and large-cap investors, especially when it comes to high-end assets, say a high-end art or a real estate property. Mid and small-cap investors often find it difficult to foray into the high-end asset investment space. But that does not offer a fair scene. There should be opportunities for all levels of investors, regardless of their level of investment capital.

Well, fractional NFTs have helped to democratize the investment scene to some extent. Thanks to its fractional nature, a fractional NFT offers each share of an NFT at a much lower price than what you would have to pay to purchase a whole high-priced asset. The fractional NFT art mentioned in the example above was sold at just 10 USD a share.

It won’t be exaggerating to claim that fractional NFTs help to create an even ground in the investment arena to make room for all kinds of investors. Thanks to fractional NFTs, mid and small-cap investors too now have the opportunity to foray into high-profile asset investment areas.

Brings liquidity to NFT space

High profile NFTs command a high-end price and for obvious reasons. While it would be unfair to reduce the price of an exclusive NFT, it’s also true that high-priced assets find it arduous to fetch willing buyers. You don’t always have whales waiting to buy every single NFT project that comes in the market. This problem has created a lack of liquidity in the NFT market.

But fractional NFT resolves the problem to a great extent by releasing liquidity in the NFT space. Fractional NFTs divide one single NFT into several parts and the parts cost just a fraction of the cost of the whole single NFT. As a result, it becomes easier for the NFT owner to fetch buyers that eventually brings easy cash flow in the NFT scene, thereby improving the liquidity factor.

Understanding of ideal price and demand

This is one key advantage that fractional NFTs have over regular NFTs.

With regular NFTs, you are selling one single piece. So, when it comes to selling, you will have to sell off the entire piece. While that’s a great thing but if an NFT creator has not been sure of the right price beforehand, he might be left wondering whether or not he got the deserving price for his prized NFT creation

However, fractional NFT offers a solution here. As you don’t have to sell off the entire NFT here at one go, you can release the NFT fractions or shares in batches to the market. This way, he would be able to gauge the level of demand for the NFT shares in the market. Based on that data, the NFT creator can set the most compatible price for the subsequent batches of the NFT shares. You don’t have this facility with regular NFTs because this single-piece buys can’t offer transaction history.