What is a Fractional NFT?

The post What is a Fractional NFT? by Anna Yen appeared first on Benzinga. Visit Benzinga to get more great content like this.

Non-fungible tokens (NFTs) have captured significant attention in the art and collectible world, though sometimes at price tags that are out of reach for most. However, fractional NFTs are a  transformative innovation poised to reshape the landscape of digital asset ownership.

This in-depth guide will give you an insight into how fractional NFTs work, the problems they were designed to solve and the top platforms supporting fractional NFT trading.

How Do Fractional NFTs Work?

Getting a good peek under the hood of fractional NFTs requires a solid grasp of the fundamentals of NFTs. An NFT is a unique digital asset representing ownership of a specific item, such as digital art, collectibles or virtual real estate. Unlike cryptocurrencies like Bitcoin, which are fungible (i.e., each unit has the same value and can be tradeable with another unit), each NFT is distinct and cannot be exchanged on a one-to-one basis with another NFT. 

NFTs are stored on blockchains where smart contracts verify their authenticity and ownership. The NFT innovation’s popularity in the art world primarily stems from its elimination of intermediaries or middlemen, allowing artists and creators to sell and benefit directly from their talents. 

Currently, the hype around NFTs has generated a lot of media attention and interest from investors and collectors, which has, in turn, driven up prices and created a sense of exclusivity around owning certain NFTs. As a result, many enthusiasts cannot afford their favorite NFT collections.

Fractional NFTs split ownership of an NFT into smaller, affordable and tradable shares. This way, you can easily own a piece of high-value NFT alongside others and gain from its potential value growth or other associated perks of ownership, such as access to exclusive in-house content and experiences.

Fractionalization is typically done through a platform that specializes in the creation and trading of fractional NFTs. These platforms also provide liquidity for investors who want to sell their shares.

Why Fractionalize NFTs?

Fractionalizing NFTs offers several advantages. It makes expensive NFTs more affordable, allowing a wider range of investors to participate in the market. It also enables NFT owners to liquidate a portion of their assets without selling the entire piece. Fractional NFT ownership can create a more vibrant and dynamic market for digital assets, as smaller shares can be traded more frequently.

Best Fractional NFT Platforms

When searching for a fractional NFT platform, you’ll want to consider factors such as ease of use, available features and the platform’s reputation. Here are three popular options:

NFTX

NFTX is a decentralized protocol that adopts the index fund approach to fractionalizing NFTs. The platform lets users deposit NFTs into a vault on the NFTX platform. The platform mints a corresponding fungible ERC-20 token (vToken) representing ownership of a fraction of the NFT. Users buy and sell these ERC-20 tokens on the platform’s marketplace, which allows for fractional ownership of the NFT. When the underlying NFT is sold or liquidated, the proceeds are distributed proportionally to vToken holders.

The NFTX platform primarily features low-value artwork and differs from other fractionalization projects on this list in that it employs a fractionalization system that pools NFTs of similar value.

The NFTX platform also features inventory staking, where users can add their floor-priced NFTs to the NFTX vault to earn a share of the vault fees. Besides being a source of passive income, inventory staking incentivizes users to provide liquidity to NFT pools, which helps to increase trading volume and liquidity on the platform.

Unic.ly

Unicly is a decentralized protocol that allows for the combination, fractionalization and trading of NFTs in a community-governed and permissionless manner. The protocol is a joint project by NFT collectors and decentralized finance (DeF) enthusiasts who aim to incentivize NFT liquidity and provide a seamless trading experience for NFT assets by introducing automated market makers (AMMs) and yield farming to the NFT sector. 

On Unicly, NFT owners can create a uToken, an ERC-20 token representing a stake in an NFT collection or a single NFT. The uToken allows users to buy, bid and govern the collection. Unlike NFTX, where the underlying NFT can be redeemed, Unicly provides ETH to users when the collection is unlocked. To distribute the NFTs to bidders and pay the token-holders their share of the payment, a certain percentage of the uToken supply must approve the unlocking of the collection.

The uTokens feature enables users to purchase a stake in multiple NFTs simultaneously or own shards of various NFTs. Compared to fungible tokens, buying NFTs can be a tedious process since every transaction requires matching a single buyer and seller, resulting in low liquidity. Additionally, many users cannot afford highly desirable items, leading to concentrated ownership and pent-up demand.

Fractional.art

Fractional.art is a platform dedicated to fractionalizing digital art NFTs. It allows for NFTs to be divided into smaller units, which multiple investors and art collectors can then own. This process can help to increase liquidity in the NFT market and make it easier for more people to invest in high-value NFTs. 

Fractional.art also provides a user-friendly marketplace for buying and selling fractionalized NFTs. 

By fractionalizing NFTs, the platform allows users to become partial owners of collectible NFTs that they might not otherwise be able to afford.

Unlocking the Power of NFTs with Fractional Ownership

Fractional NFTs offer an innovative solution to the challenges posed by the high cost of entry into the NFT market. By breaking down barriers and making digital assets more accessible, fractional ownership platforms like NFTX, Unicly, and Fractional.art are poised to transform the world of NFT investing.

Frequently Asked Questions

The post What is a Fractional NFT? by Anna Yen appeared first on Benzinga. Visit Benzinga to get more great content like this.