“NFTs have exploded this year. With a staggering total revenue of over $15 billion in 2021, compared to just $ 340 million in 2020, NFTs are likely to peak”
A fractional NFT is a complete NFT that is divided into smaller pieces. Fractional NFTs are helping to increase NFT space engagement and participation. In addition to making NFTs accessible to as many people as possible, Fractional NFTs have the potential to increase market liquidity, better pricing, and democratization.
As the popularity of some NFT collections increases, so do their floor prices, which are great for investors, collectors, and artists who rush into space. But what about those who are trying to get into the market now? Most cannot afford to buy more expensive NFTs, but they can indeed explore the possibilities offered by Fractionalized NFTs. The concept of fractionalization is equivalent to owning shares of a company. It provides NFT ownership for multiple collectors and makes it accessible to anyone, not just the NFT wheel. People can buy and sell NFTs from XANALIA Marketplace. This article will explore what Fractionalized NFTs are, how they work, their benefits, and more.
What Are Fractional NFTs
A fractional NFT is simply a complete NFT broken down into smaller pieces. It allows different people to claim partial ownership of the same NFT. Think of it as a cake that can cut an entire cake to serve more than one person. Every NFT is unique and cannot be replicated; partial NFTs push the boundaries by making it possible to distribute their ownership.
How Does NFT Fractionalization Work?
The ERC-721 token standard is the most common standard used to make NFTs on the Ethereum blockchain (ERC-1155). While both of these standards can produce unique non-fungible tokens, the ERC-20 standard uses to make Altcoins and other fungible tokens. Fungible tokens are interchangeable; each unit has the same utility and intrinsic value. You can deploy a smart contract to create multiple ERC-20 tokens linked to the indivisible ERC-721 NFT. Anyone with ERC-20 tokens can own a percentage of the linked NFT.
Can Fractional NFTs Be Reversed?
It is possible to reverse the process of fractionalization and convert fractal NFT to complete NFT. Typically, a smart contract that fractionalizes NFT has a buy-out option that allows the Fractional NFT holder to purchase all the fractions to unlock the original NFT.
Typically, a fractional NFT holder can initiate a purchase option by transferring a certain number of relevant ERC-20 tokens back to the smart contract. It will start a buyback auction, which will run for a fixed time. Other fractional NFT holders have some time to decide. If the purchase is successful, the parts are automatically returned to the smart contract, and the buyer gets full ownership of the NFT.
What are the Benefits of Fractional NFTs
1.Democratization
The rising prices of some of the most popular NFTs are unbearable for many, preventing small investors or depositors from replacing NFTs. Partializing an expensive NFT reduces the cost and makes it more accessible to more people.
2.Greater Liquidity
With the growing popularity of NFTs, the cost of the popular combination increases dramatically. It makes some NFTs accessible to only a handful of wealthy investors. With Fractional NFTs, you can split the ownership of ERC-721 or ERC-1155 tokens into multiple ERC-20 tokens, making them more affordable.
3.Price Discovery
With a very limited or no transaction history, it can be challenging to determine the exact price for a more expensive NFT. Fractional NFT makes it more affordable and allows more people to trade the asset, making it easier for buyers to find the actual value of NFT.
4.Increased Visibility for Creators smaller
With fractionalization, digital creators can gain even more exposure online as they can reach a broader audience in a more liquid market.
How Do Fractional NFT Holders Benefit?
The most crucial benefit to fractional NFT holders is that they become the owners of a more significant and more expensive percentage of the entire NFT. Depending on the NFT and the platform from which the Fractional NFT was purchased, the holder may enjoy other benefits such as exclusive access to the NFT community and voting rights.
Some fractionalized NFT projects also support stacking, allowing holders to lock their Fractional NFT on a platform or protocol to reap stacking rewards and other benefits.
What Are The Disadvantages of Fractional NFTs?
Fractionalized NFTs are as secure as they are built on smart contracts, so it depends on the quality of the code. However, in some cases, a potential buyer or partial owner of NFT may initiate a buy-out auction.
If other faction holders outperform the person initiating the auction, they can control their share but at a higher price. If the person successfully exceeds the other fraction holders. According to the size of their holdings, their payments will be distributed to each owner. While they still get paid for their share, it allows you to sell your share even when you don’t want to.
Conclusion
Fractional NFTs may be the next thing to consider as they make the NFT world more accessible. So, if you want a particular NFT combination but don’t want to commit to it because of the high cost, Fractional NFTs are something you can look for.
