Ever since NFTs first went live, they were restricted to a smaller chunk of the community for two reasons; one, due to their complexity, and two, due to the high costs. Now that awareness of NFTs has spread far, and the first concern was eliminated, showcasing how mainstream NFTs have reached. You may ask, “What about the second one?” The second one is slowly fading, and it might get extinct for good soon. Fractional NFTs have emerged in recent times, addressing the concern of illiquidity for costly NFTs. Let’s jump straight in with insights from CES’s seasoned NFT development professionals.
Fractional NFTs: What Should You Know?
Fractional NFTs (shortened as F-NFTs) are non-fungible tokens divided into smaller portions. These tokens can be helpful for selling expensive NFTs that cannot otherwise be sold by dividing them into numerous tokens that can be sold to small-scale investors. The model can apply to any kind of NFT item, making it easy for all Web3 enthusiasts.
Main applications of NFT fractionalization as of today include artworks and real estate assets (No, not the “real estate tokenization” you knew). The catch here is that these NFTs can then be traded for a different value than the original sale value, increasing the chances for traders to gain fortunes.
Use Cases of NFT Fractionalization
- Fractional NFTs can be utilized for artwork NFTs that can be easily liquidated by dividing them into numerous portions, which can be sold quickly, enabling artists or primary buyers to see profits.
- F-NFTs can be used in metaverses to allow retail investors, corporations, and scale-wise enterprises to invest in virtual world projects by buying portions of plots in prominent locations inside those platforms.
- NFTs backing real estate assets can be fractionalized by dividing their documents into NFTs, each NFT representing a portion of the plot and relevant rights demonstrated in the smart contract.
How Do F-NFTs Work?
When we come to the working part of Fractionalized NFTs, it is pretty interesting. Firstly, let us consider an NFT on the Ethereum blockchain based on the ERC-721 standard. Now, let us fractionalize this NFT item into 1,000 equal shares by creating 1,000 ERC-20 tokens representing portions of the product by coding the underlying smart contract program to do so.
These NFTs can then be distributed to many people through fixed-price sales or auctions that could help to make them sellable. These NFTs can then be sold separately in the secondary market by the new owners, further elevating the overall value of the undivided NFT.
Are There Any Advantages to Doing So?
Fractional NFTs have been around for quite some time now, enabling us to draw some advantages these NFT items provide to users. Let’s see them one by one.
- Fractionalizing NFTs allows creators to discover the monetary worth of their skills (to some extent) by something called price discovery. For instance, as a beginner, it might be confusing for a creator to determine the price of their NFTs (they might set it too high or too low). Instead of waiting for secondary markets to explode at the cost of earning profits, utilizing F-NFTs could offer more safety by fixing prices for NFT portions.
- Through F-NFTs, high liquidity is ensured for NFTs, as they can quickly reach a wide range of investors due to the prices at these portions being listed for sale. While solving illiquidity concerns, they also make prestigious NFTs accessible to retail investors.
- For people who sell NFTs through fractionalization, there can be incentives or royalties set for secondary sales, increasing the amount of passive income they earn in the long run.
How can CES Aid You with NFT Fractionalization?
At CES, we concentrate on bringing projects to life with the utmost quality. Our excellence in creating fractional NFTs for our clients has earned us a reputation in the Web3 community. Our company consists of individual teams for all aspects of consulting, development, promotions, and support that can effectively help you round the clock to create fractionalized NFTs for your assets. Contact one of our professionals right now to begin drafting an action plan to mint F-NFTs backing your assets.
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