So you missed out on the NFT boom last year, and the floor prices of projects you were eyeing have grown beyond your reach – some are still valued at six to seven, and even eight figures.
Despite the subsequent pullback in the crypto markets against uncertain economic conditions, many of these projects are still trading at extraordinary valuations.
You might think it’s too late to make a meaningful venture into the NFT space, but fret not! Fractional-NFTs (F-NFTs) are here and here to stay.
Interest in F-NFTs – a relatively new concept in the space – has seen a gradual rise since the recent NFT boom, and seems to be the natural progression for the space going forward and could likely be one of the next big trends to keep an eye on in the crypto space.
The concept of fractionalization is nothing new – it has been around in the traditional financial markets.
Take public-listed companies for example. It is unlikely that the man on the street can afford to purchase an entire company, but a person can instead buy its shares, representing fractions of ownership in the company, to benefit from its growth and potential value appreciation.
Another traditional finance example would be the fractional ownership of high-value assets such as aircraft and vacation properties, whereby the asset's cost is divided among a group of owners.
To put it simply, instead of forking out the funds to purchase the entire pie, investors can instead acquire a slice (or a few slices) of the pie.
Advantages of fractionalization
One of the main benefits of F-NFT is the lowering of entry barriers into popular high-value projects.
Most popular NFT projects currently carry a rather hefty price tag, rendering them inaccessible to the average blockchain enthusiast. Therefore, fractionalizing these assets democratizes access and makes it easier for smaller investors to gain exposure to the space.
On the other side of the equation, artists would also be able to achieve greater exposure as fractionalization opens them up to a wider audience.
Fractionalization also allows holders and collectors of high-value NFTs to monetize a share of their assets without relinquishing their ownership entirely by outright selling.
This also allows the holder to unlock value with less hassle, as it often takes a long time to find an interested buyer for high-value NFTs.
F-NFT holders, on the other hand, depending on the platform used, can be granted voting rights and may also stake their assets – locking up their F-NFTs in exchange for recurring rewards or other benefits.
Fractionalization of physical assets
While digital assets have been taking center stage when it comes to talks around fractionalization and F-NFTs, there has also been growing interest in applying the technology to real-world physical assets.
Several projects have explored the potential of fractional ownership of luxury goods, fine art, wine, gemstones, and even real estate, capitalizing on the possibility of democratization of access to a wider audience.
Diamond Alpha is a project incorporating the tokenization of lab-grown diamonds through the use of F-NFTs.
The project looks to open the way for investors to participate in the gemstone growing process by acquiring fractions of a batch of diamond seeds, potentially offering returns to holders once the seeds are developed into diamonds roughs, and from roughs to polished diamonds.
While holders of F-NFTs of purely digital assets – those without the backing of a physical asset – could see the value of their asset completely eradicated if something goes wrong with the underlying NFT, the value of Diamond Alpha’s F-NFTs will always be tied to the actual value of the diamonds it represents.